538
1 MANITOBA CLEAN ENVIRONMENT COMMISSION
2
3 VERBATIM TRANSCRIPT
4 Volume 3
5
6 Including List of Participants
7
8
9
10 Hearing
11
12 Wuskwatim Generation and Transmission Project
13
14 Presiding:
15 Gerard Lecuyer, Chair
16 Kathi Kinew
17 Harvey Nepinak
18 Robert Mayer
19 Terry Sargeant
20
21 Wednesday, March 3, 2004
22 Radisson Hotel
23 288 Portage Avenue
24 Winnipeg, Manitoba
25
539
1 LIST OF PARTICIPANTS
2
3 Clean Environment Commission:
4 Gerard Lecuyer Chairman
5 Terry Sargeant Member
6 Harvey Nepinak Member
7 Kathi Avery Kinew Member
8 Doug Abra Counsel to Commission
9 Rory Grewar Staff
10 CEC Advisors:
11 Mel Falk
12 Dave Farlinger
13 Jack Scriven
14 Jim Sandison
15 Jean McClellan
16 Brent McLean
17 Kyla Gibson
18
19 Nisichawayasihk Cree Nation:
20 Chief Jerry Primrose
21 Elvis Thomas
22 Campbell MacInnes
23
24
25
540
1 LIST OF PARTICIPANTS
2
3 Manitoba Conservation:
4 Larry Strachan
5
6
7
8 Manitoba Hydro/NCN:
9 Ed Wojczynski
10 Ken Adams
11 Carolyn Wray
12 Ron Mazur
13 Lloyd Kuczek
14 Cam Osler
15 Stuart Davies
16 David Hicks
17 George Rempel
18 David Cormie
19
20
21
22
23
24
25
541
1 INDEX OF EXHIBITS
2
3 Number Page
4
5 MH/NCN 1001: TREE rebuttal 813
6
7 MH/NCN 1002: CV's for Alex Flemming
8 and Marvin Schaffer 813
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
542
1 INDEX OF UNDERTAKINGS
2
3 UNDERTAKING NO. PAGE
4 MH-10: Advise what sort of capital
5 costs would be involved in building
6 63 turbines necessary to get
7 100 megawatts 584
8 MH-11: Provide the supporting
9 calculations for the 6.1 IRR as
10 shown on page 24 of
11 Mr. Wojczynski's submission 622
12 MH-12: Advise specifically what
13 the technologies were, re 46(c)
14 and (d) from CAC/MSOS/MH/NCN.2,
15 and why the decision was made to
16 eliminate them or not to proceed
17 with them 644
18 MH-13: Check where cost of hearings
19 are filed 732
20 MH-14: Advise which line NCN portion
21 of the revenue is deducted from 751
22
23
24
25 INDEX OF UNDERTAKINGS
543
1 UNDERTAKING NO. PAGE
2
3 MH-15: Identify where in accounts
4 receivable NCN component is broken
5 down 753
6 MH-16: Provide projected financial
7 statements under scenario assuming
8 Wuskwatim, plus 200 megawatts
9 of wind and two times DSM 765
10 MH-17: Provide financial statement
11 for worst case scenario 767
12 MH-18: Provide documentation
13 of comparison of run-of-the-river
14 mode re three fixed blade turbines
15 as opposed to use of Kaplan
16 turbine 790
17 MH-19: Advise reason for change from
18 guyed tubular steel to guyed lattice
19 steel 802
20 MH-20: Advise re precautions taken
21 in construction in order to overcome
22 difficulties arising as result of
23 permafrost 805
24
25
544
1 WEDNESDAY, MARCH 3, 2004
2 Upon commencing at 1:00 p.m.
3
4 THE CHAIRMAN: Ladies and gentlemen, it is
5 just a few seconds past one o'clock according to my
6 watch and time to reconvene the hearing as per our
7 schedule. I trust everybody has had a long night's
8 sleep. And I hear about people having gone to the
9 gym, some went to swim. I don't know if any went
10 skating and stuff like that but I gather that was the
11 first break in a number of days and everybody must be
12 feeling chirpy and alive. So we'll carry on.
13 And at this point, I think we carry on with
14 the cross-examination on the NFAAT features of the
15 proposal. So just as he gets to his chair, I'll turn
16 the ball over to Doug Abra.
17 MR. ABRA: Thank you, Mr. Chairman.
18 MR. ADAMS: Mr. Chairman, we have two
19 undertakings we'd like to respond to.
20 THE CHAIRMAN: Yes.
21 MR. ADAMS: Undertaking MH-7, page 472 in
22 yesterday's transcript. We undertook to clarify the
23 expenditures related to pre-project training.
24 Manitoba Hydro has allocated $5 million of project
25 funds to the Wuskwatim project, 75 per cent of that
545
1 will be to the NCN and 25 per cent is to other
2 Northern Aboriginal people. To date, NCN has been
3 provided $1,065,420 and no money has yet been
4 expended with respect to other Northern Aboriginals.
5 The Province of Manitoba has allocated $2.5
6 million to the pre-project training for Wuskwatim, 75
7 per cent to go to NCN, 25 per cent to go to other
8 Northern Aboriginal people. To date, NCN has been
9 provided $760,200. And no money has been provided to
10 other Northern Aboriginals.
11 From Canada that we know of, and there may
12 be -- Canada may have other arrangements that we're
13 not aware of, Indian and Northern Affairs has
14 allocated and paid $3.26 million to NCN to help in
15 the construction of the ATEC facility.
16 Western Economic Diversification has
17 allocated $5 million to the Northern Training
18 Initiatives but without a specific split between
19 Wuskwatim and other projects. To date, none of that
20 has been disbursed. And as we mentioned yesterday,
21 we're working -- we are all partners with Human
22 Resources and Skill Development in an attempt to
23 raise another $22 million from the federal
24 government.
25 THE CHAIRMAN: So the total of that, Mr.
546
1 Adams, if you have. We'll figure it out.
2 MR. ADAMS: I can get the total.
3 THE CHAIRMAN: It's okay.
4 MR. MAYER: We all have calculators.
5 THE CHAIRMAN: I just thought you had it. Mr.
6 Mazur?
7 MR. MAZUR: Undertaking number 7, I was to
8 verify that the transmission development fund is $7.8
9 million. And in fact that is the number. Thank you.
10 THE CHAIRMAN: All right. Those were the two
11 points you wished to put on the record at this time.
12 Thank you. Mr. Abra.
13 MR. ABRA: Thank you, Mr. Chairman. I'd like
14 to move now to still under the alternatives portion
15 of the cross-examination to thermal alternatives.
16 And I understand, and correct me if I'm wrong, that
17 in essence, there are two thermal alternatives that
18 are available to Manitoba Hydro. One of them is the
19 simple cycle combustion turbine, or as it's often
20 referred to as SCCT which couples an electric
21 generator directly to a turbine shaft. Am I correct
22 in that basically?
23 MR. WOJCZYNSKI: Yes.
24 MR. ABRA: And then there's a combined cycle
25 combustion turbine which is a CCCT which adds a
547
1 second generating cycle by capturing the waste
2 exhaust heat; is that correct.
3 MR. WOJCZYNSKI: Yes.
4 MR. ABRA: Is it fair to say, is it a more
5 efficient system than the SCCT?
6 MR. WOJCZYNSKI: Yes.
7 MR. ABRA: Okay. Now I gather there's a more
8 capital cost inherent though in the CCCT as opposed
9 to the SCCT?
10 MR. WOJCZYNSKI: Yes.
11 MR. ABRA: We're moving quickly.
12 MR. WOJCZYNSKI: Yes.
13 MR. ABRA: I understand that you, at present,
14 do have two simple cycle combustion turbines, one in
15 Brandon and one in Selkirk?
16 MR. WOJCZYNSKI: Not quite.
17 MR. ABRA: Okay.
18 MR. WOJCZYNSKI: We have two simple cycle gas
19 turbines of the kind you were referring to earlier
20 at Brandon that we put in a couple of years ago. And
21 then what we did also more or less in the same time
22 frame recently is converted the Selkirk generating
23 station from coal-based operation to gas-fuelled
24 operation. So we have two simple cycle turbines at
25 Brandon, brand new ones. And then we have the two
548
1 old steam turbine units at Selkirk but also fuelled
2 on natural gas. So we have a total of four units on
3 natural gas on our system now.
4 MR. ABRA: So there's no coal in the system
5 now?
6 MR. WOJCZYNSKI: There is one unit at Brandon,
7 number 5, 105 megawatts approximately. That is a
8 coal unit and it's a unit that is quite valuable to
9 us and we are still using.
10 MR. ABRA: So do I understand you to be saying
11 there's three then in Brandon and one in Selkirk?
12 MR. WOJCZYNSKI: There are two simple cycle
13 turbines with that technology.
14 MR. ABRA: In Brandon?
15 MR. WOJCZYNSKI: At Brandon.
16 MR. ABRA: And they are operated by natural
17 gas?
18 MR. WOJCZYNSKI: And they are operated by
19 natural gas. And then the third unit that's
20 operational at Brandon is the different technology
21 which is the steam turbine fuelled by coal.
22 MR. ABRA: Okay. And then Selkirk has just
23 been converted from coal to natural gas?
24 MR. WOJCZYNSKI: Yes.
25 MR. SARGEANT: Is that a steam turbine?
549
1 MR. WOJCZYNSKI: It is a steam turbine at
2 Selkirk.
3 MR. ABRA: Now, in your original filing in
4 chapter 4 at page 6, you indicated in the original
5 filing that often your competitors and export
6 customers find the two turbine system options very
7 attractive, that being the SCCT and the CCCT. And
8 yet, you have not indicated in any of your planning
9 that you intend upon implementing any more of those
10 types of systems, at least if the foreseeable future.
11 What I assume from that that you don't find it
12 as attractive as your other areas or options that
13 you're presently investigating. What's the reason
14 that it's not attractive to Manitoba Hydro if it
15 seems to be attractive, as you've indicated in the
16 original filing, to customers or potential customers?
17 MR. WOJCZYNSKI: The fundamental reason and I
18 can expand on it if you want, but the fundamental
19 reason is that we have alternative resources that are
20 more overall attractive than the gas turbines. And I
21 should explain one thing right now. You can use
22 particularly the simple cycle turbines in a very
23 peaking mode where you just run them occasionally
24 when you're short of capacity. Or in the case of us
25 if you had a bad drought, you run them. But it means
550
1 you use them relatively infrequently.
2 This conversation I think is probably more
3 focused on our export market where they would be
4 running, for instance, combined cycle gas turbines on
5 a more higher operational use, more hours use. And
6 so they would use it more for energy than just
7 back-up. So there's different roles they can play.
8 But aside from that, our options that we have are
9 generally right now more attractive to us than
10 putting in gas turbines in Manitoba.
11 MR. ABRA: So a number of those that you
12 export to do use them but you don't prefer to use
13 them?
14 MR. WOJCZYNSKI: Generally, yes.
15 MR. ABRA: And the reason for that is what,
16 I'm sorry?
17 MR. WOJCZYNSKI: Okay. Because we have in
18 Manitoba other options which are lower costs and more
19 attractive overall, the ones we have talked about
20 yesterday.
21 MR. ABRA: Okay.
22 MR. MAYER: Part of the attraction, if I
23 thought I heard you correctly yesterday, was you have
24 no control over the price of gas and gas is a
25 non-renewable resource?
551
1 MR. WOJCZYNSKI: That is correct. Those are
2 two of the factors. Natural gas is expected to be
3 relatively costly in the future. I had indicated
4 yesterday, or was it perhaps Monday, but over the
5 last two days, that natural gas price forecasts are
6 increasing. So even what was in our original
7 submission is understating the cost of natural gas.
8 So even the average price of natural gas into the
9 future is going to be higher than the current
10 forecast.
11 The second issue is there's a volatility in
12 gas prices. So you can get gas price spikes that
13 expose anybody who is using them to all of a sudden
14 huge increases in their cost that they can't control
15 as pointed out by Mr. Mayer.
16 Other features such as it's not renewable.
17 And another reason that if environmental requirements
18 increase for greenhouse gases or for nitrous oxide,
19 those would increase the cost of the gas turbines.
20 MR. ABRA: Now, with respect to coal-fired,
21 Mr. Wojczynski, we recognize that there are
22 significant environmental regulations that have come
23 into place over the last number of years related to
24 them and probably more in the future. Was it for
25 that reason that you converted the Selkirk plant? I
552
1 remember there being some publicity about that a few
2 years ago about concern there being coal emission.
3 You converted as a result of that?
4 MR. WOJCZYNSKI: With respect to the Selkirk
5 plant, we were in the process of reviewing the future
6 of the Selkirk plant when a public controversy arose
7 as to whether or not the Selkirk plant emissions were
8 causing problems in a region adjoining to it. There
9 were a lot of concerns by some residents. Our
10 studies were able to demonstrate that there were no
11 significant impacts but that did raise the profile of
12 the issue.
13 We already were in the process of reviewing
14 what we were going to do with the Selkirk Generating
15 Station. And the public controversy that arose with
16 that and the concerns by the public and the questions
17 from our regulator as well caused us to accelerate
18 our planning considerations. And so we decided to
19 convert from coal to gas in part because of public
20 controversy but more fundamentally because of concern
21 about the long-term regulation of coal generation at
22 Brandon at that time -- sorry, at Selkirk. We did
23 not have the most modern particulate controls. We do
24 have them at Brandon. We didn't have them at
25 Selkirk. There was a lot of use of the land adjacent
553
1 to the station. So you've got people close by. And
2 so you've got fugitive emissions, dust, for instance,
3 off the coal pile. And there were other concerns
4 about, in the long run, the regulations will increase
5 for the very fine particulates out of coal stations,
6 concerns about other emissions.
7 So when we did an overall analysis of the
8 future of Selkirk, we decided it was better to switch
9 from coal to natural gas.
10 I draw a distinction between that and what we
11 want to do at Brandon because Brandon, it's a more
12 modern unit, a larger unit, more efficient and
13 already has a number of environmental enhancements in
14 it. So we decided to switch Selkirk and not Brandon
15 because of the different circumstances there.
16 MR. ABRA: Is there any possibility in the
17 future or the foreseeable future of increased
18 technology to the point that coal might be a viable
19 alternative or are the regulations going to continue
20 to get more stringent and the technology simply not
21 be capable of keeping up to them?
22 MR. WOJCZYNSKI: That's an excellent question.
23 MR. ABRA: Well, thank you.
24 MR. WOJCZYNSKI: I mean all the questions are
25 good but some are more excellent than others.
554
1 The technologies for all the various types of
2 energy, electrical energy sources are continually
3 improving whether it's Hydro, coal, natural gas,
4 wind, nuclear, whatever you want to talk about. So
5 as you put in your question, there's almost a race
6 between the technology improving and the
7 environmental requirements becoming more stringent.
8 So there are technologies that are
9 increasingly being used. Fluidized bed is on example
10 which is an incremental improvement to the technology
11 which helps somewhat but doesn't overall increase the
12 capital cost. But our assessment is in the long term
13 that those kind of incremental technology
14 improvements will not be able to keep pace with the
15 environmental requirements.
16 There are some more dramatic changes that one
17 can do with coal technology and there's two types
18 that I'm thinking of here. One is that you have a
19 dramatically different form of coal generation
20 burning. And there's a lot of research, particularly
21 in the United States, going on into that but right
22 now it's not clear that that would be economically
23 feasible. And one of those is integrated coal
24 combined cycle gasification which is like you put in
25 a huge chemical plant.
555
1 But the second area of possibly moving to a
2 clean coal technology is rather than just changing
3 the technology is you could go to what's called
4 sequestration. And by that what we're saying is you
5 have a coal combustion process of some kind. It
6 produces NOx SOx, mercury and cadmium and other heavy
7 metals particulates, greenhouse gases. And one thing
8 you could do is take all of those emissions or a
9 large portion of those and take the emissions out of
10 the plant, pipe them to an injection site where you
11 have drilled wells into the ground 1,000 feet, two
12 miles, whatever, down. And you inject the emissions
13 from the coal into the formation, the subground
14 formation. And then in effect, you store them
15 hopefully forever down there.
16 And there's been a lot of work done. And
17 Canada is actually one of the leaders in that but
18 it's quite costly.
19 MR. ABRA: I was going to say that would be
20 costly I would assume?
21 MR. WOJCZYNSKI: Yes, it's very costly. So
22 there's a whole bunch of different possibilities but
23 when we look at them in the long term, we think the
24 coal won't just die away as an option but will become
25 increasingly costly and probably less prevalent as
556
1 well.
2 MR. MAYER: I know that we have to explore
3 needs and alternatives. But from Manitoba Hydro's
4 point of view, last I heard we didn't have a whole
5 pile of coal in Manitoba and, therefore, there's got
6 to be some significant transportation cost.
7 Secondly, last I heard, we didn't have a whole pile
8 of natural gas in Canada because we keeping having to
9 ship it over those pipelines that periodically blow
10 up.
11 We do have what appears to be an abundance of
12 eminently of renewable resource. And it would appear
13 to be the case that to date, we've already done
14 whatever damage, as bad as that may be, the fact is
15 it's already been done in terms of whatever the
16 building of the older style generating stations have
17 been. Why would Manitoba Hydro even consider looking
18 at any of those other alternatives other than the
19 fact that we require you to do so at this hearing?
20 MR. WOJCZYNSKI: I would say you're right in
21 your overall statement there but you are asking a
22 question. So the simple answer is yes but it wasn't
23 a yes/no question.
24 We always look at all the alternatives just to
25 be sure we're going to be doing the right thing.
557
1 Secondly, we do need it as part of the requirements
2 for this process, but we would have done it anyways.
3 We would have looked at these alternatives anyways.
4 A third reason is that we look at what happens at our
5 export markets.
6 Part of our ability to be confident that we're
7 going to get a good price is to know what are all of
8 the other technologies, what are their costs, what
9 are their characteristics, what are their
10 capabilities so that we have a handle on the export
11 market. So that's a part of the need for
12 alternatives is what can we build in Manitoba but
13 also what happens in the export market.
14 We do need some resources to back us up in
15 drought. So even though we aren't generally looking
16 at gas or coal as a very attractive resource, we do
17 need something to have the most optimal operation is
18 to have some back-up in droughts.
19 MR. MAYER: It is also my understanding, sir,
20 that at least, if my recollection is correct, when
21 you built limestone and your original long-term
22 contract that I think was with Northern States Power
23 actually tied the cost of your -- tied the price of
24 your power to the price of coal?
25 MR. WOJCZYNSKI: Yes. And it was 80 per cent
558
1 of the incremental cost, yes. So this is part of our
2 knowledge that what our exports are doing. We know
3 what our competitors are doing and we know what our
4 customers are doing or thinking of doing. And the
5 majority of the time when we are arranging long-term
6 firm exports particularly but also in the short-term,
7 the alternative normally for our customers is thermal
8 generation. And most often historically it's been
9 coal, sometimes gas. It's still both of those most
10 of the time.
11 MR. ABRA: Mr. Chairman, I am finished my
12 questions with respect to the thermal alternative.
13 Unless any of the Commission members have any
14 questions, I'll move on to wind.
15 THE CHAIRMAN: Carry on.
16 MR. ABRA: Which is apropos because many
17 people accuse we lawyers of having bags of it.
18 It's my understanding, sir, that the federal
19 and state governments in the United States have
20 budgeted significant grants and are bringing in
21 subsidies, favourable tax treatments and green power
22 premiums to spur the development of wind in that
23 country. And also bio energy and fuel sales and
24 solar systems and so on.
25 Assuming for a moment that if the U.S. was
559
1 able to develop its own clean energy by the use of
2 solar systems or fuel cells or wind, is that going to
3 impact on your ability to export your water
4 generation power?
5 MR. WOJCZYNSKI: We fully expect that in our
6 export markets, particularly in the U.S. but also
7 Canada, that there will be a continuing effort by the
8 governments to have subsidies, research programs, tax
9 treatments, other things, will take the uneconomic
10 resources and make them more economic and accelerate
11 their technological advancement and commercial
12 development. And so we do expect that there will be
13 an increasing use of what one might want to call
14 alternative technologies. And we fully anticipate
15 that and look forward to that. And so do the
16 forecasts that we utilize as our basis for our export
17 market forecasts.
18 Even though with all those kinds of programs
19 in Canada, the U.S., internationally, because
20 development of alternative technology is not just --
21 it's a worldwide effort, we do not anticipate that
22 there will be a significant impact on -- significant
23 in terms of a dominant impact in our markets that
24 they will displace the coal and gas options so that
25 they are only small amounts and insignificant
560
1 amounts. We expect that in any of the realistic
2 scenarios looking into the future that there will be
3 major amounts of thermal resources still being used
4 and still being added. And that what we will be
5 displacing are those in the main.
6 MR. ABRA: In the U.S. primarily?
7 MR. WOJCZYNSKI: In the U.S. primarily but
8 also in the Canadian markets. But our focus is
9 mainly in the U.S.
10 MR. ABRA: Now you said that you've taken a
11 look at this issue and spent significant time on it
12 in your forecast. What sort of steps had you taken
13 to satisfy yourselves that indeed your export market
14 won't be affected by the alternatives that are being
15 developed in the United States?
16 MR. WOJCZYNSKI: Briefly what we do is we
17 in-house maintain a number of staff who are engineers
18 and others but who are very capable engineers who
19 enthusiastically look at all these options and have
20 our own in-house capability. We are involved in a
21 number of organizations and members, whether it's the
22 U.S. agencies like EPRI, Electric Power Research
23 Institute, or other organizations in Canada,
24 coalitions where -- and we subscribe, we buy research
25 from others. So we're always staying on top of the
561
1 evolving technologies.
2 Second thing we do is we interact with our
3 peers in other jurisdictions to know what we are
4 doing and thinking. And so make sure that we have
5 regional knowledge and know what the other generators
6 are thinking and doing.
7 Third thing we do is we develop export market
8 forecasts utilizing some of the best and I would say
9 the best consulting expertise in North America in
10 this area who each, independently of each other and
11 independent of us, are familiar with these
12 technologies and are at the forefront of thinking
13 about what their impacts are going to be and we look
14 at the range of forecast and incorporate them into
15 our long-range forecasts.
16 MR. ABRA: Okay. The Canadian federal
17 government I understand has a subsidy program itself
18 of .8 cents per kilowatt hour nominal and .5 cents
19 per kilowatt hour real with respect to wind; am I
20 correct?
21 MR. WOJCZYNSKI: I'm sorry, Mr. Abra, could
22 you please repeat that?
23 MR. ABRA: Sure. I understand that the
24 Federal Government of Canada has a subsidy program
25 for wind of .8 cents per kilowatt hour nominal and .5
562
1 cents per kilowatt hour real. Firstly, what do the
2 terms "nominal" and "real" mean?
3 MR. WOJCZYNSKI: First nominal and real. By
4 nominal dollars, we are talking about before you
5 subtract inflation. You will remember there was a
6 discussion with Ms. Wray yesterday and with myself
7 the day before where nominal dollars are the dollars
8 that you and I see when we go to the store and pay it
9 and we pay the next year and we pay the next year
10 when we go to the store, or whatever, and inflation
11 occurs, let's say it's 2 per cent per year. And so
12 the price of something $1.00 today and $1.02 the next
13 year and $1.04 the second year, those are nominal
14 dollars. So the real dollars are saying we don't
15 want to get mixed up with all this inflation stuff.
16 It's easier to just work what we call in real
17 dollars so we subtract the inflation out. So if an
18 item costs $1.00 this year, in real dollars, it will
19 still be a dollar next year and a dollar in the third
20 year. And so it always stays at the same as long as
21 the price increase in that item is the same as
22 inflation.
23 So the .8 cents is before you take out the
24 inflation and .5 cents is after you subtract that
25 out.
563
1 MR. ABRA: Is that the present level as far as
2 you are aware, Mr. Wojczynski?
3 MR. WOJCZYNSKI: Yeah. First of all, it's a
4 levelized price over a number of years and it's what
5 would be available if someone were to put in a new
6 wind generator and get from the federal program. If
7 they met all the requirements and were successful at
8 that, there's a large oversubscription in the federal
9 program nationally. They are only allocating 1,000
10 megawatts of wind. If memory serves me right, it's
11 in the order of around 10,000 megawatts. That may
12 not be exactly right but it's many thousands of
13 megawatts. It's many thousands of megawatts anyways
14 of oversubscription meaning more people are trying to
15 get subsidy than is available.
16 MR. ABRA: Than the amount that's available?
17 MR. WOJCZYNSKI: Yes. And so generally that
18 would be available if they were successful at getting
19 that and they have to put it in pretty quickly
20 because the program dies out in a few years.
21 MR. ABRA: I was just going to ask you that.
22 Is it intended to continue in the future or is it
23 not?
24 MR. WOJCZYNSKI: The federal government plan,
25 and there's been a lot of lobbying by the Canadian
564
1 Wind Energy Association and others, to try and have
2 the federal government extend it. But so far, their
3 stated plan is to have it ramp down. There's a very
4 specific set of dates and time frames. And they have
5 indicated so far, the Federal Government has
6 indicated it doesn't plan to extend that but that's
7 always possible. One does not know for sure what's
8 going to happen.
9 Maybe I could add a slight thing to that. The
10 intent for the federal government and other
11 governments with these subsidies is they look at a
12 technology and say it's not economic. Let's put in a
13 subsidy to help make it economic, to move it along.
14 If there's going to be a subsidy down the road, it's
15 because the conclusion is it's not economic without
16 it.
17 MR. MAYER: And by economic, in light of the
18 fact that they use wind generation I understand
19 relatively significantly in the Scandinavian
20 countries, the issue is economic as compared to what?
21 MR. WOJCZYNSKI: You're right. A big issue is
22 what is your alternative. The main cost for wind
23 generation is not very site specific. It's
24 technology available anywhere in the world. And so
25 if you're in an area of the world that has high
565
1 energy cost, then wind is quickly going to be
2 economic. You're absolutely right.
3 The other element though that has to be
4 recalled is that in Europe, there are very large
5 subsidies for wind, much larger than anything in
6 Canada or the U.S. So it's a combination of those
7 two factors. For instance France, I can't remember
8 Germany, but France, energy costs, wholesale costs
9 are something like three times what they are in
10 Canada. Retail is in that order, higher two to three
11 times. So you are talking about in Europe, there's a
12 much higher likelihood of those kind of resources
13 being found to be economic.
14 MR. SARGEANT: Mr. Wojczynski, a month or two
15 ago, I read a story in the Free Press about some new
16 technology in wind generation. I believe it came out
17 of California. Part of the story was also -- part of
18 the hook in the story was also that this new
19 technology was much less destructive of birds which
20 apparently the current wind farms in California kill
21 a huge amount of birds.
22 But I think this story said that or I seem to
23 recall that the story indicated that the new
24 technology was about twice as efficient as the 35 per
25 cent that you were speaking of the other day. Are
566
1 you familiar with that?
2 MR. WOJCZYNSKI: Yeah, I'm not sure of the
3 specifics of the technology you're referring to. One
4 comment is that the technology is evolving and there
5 are a whole bunch of changes that have happened. And
6 I think perhaps probably what you're referring to is
7 that we've got -- that the industry has moved to
8 bigger turbines with blades that are larger. The
9 whole wind turbine height is increasing. So you are
10 higher up, you're going to have bigger blades and
11 then they can turn more slowly and so it's easier for
12 birds to get out of the way.
13 The second is it used to be lattice towers
14 where you used for wind generation. And raptors
15 particularly used to like sitting on them because
16 then they can perch and look for their prey. But the
17 unfortunate part is when they would go to get their
18 prey, they would be preyed upon by the blades and
19 that was a huge problem. Now there's the smooth
20 towers and pretty well all the modern ones use those.
21 So there's those kind of actions which have
22 reduced the killing of birds and also increase the
23 ability for the turbine to use the wind. But those
24 technologies, kind of technologies are the ones we're
25 using, assuming, pardon me, in our analysis.
567
1 MR. SARGEANT: The most efficient technology?
2 MR. WOJCZYNSKI: Yes, that's right. And as a
3 matter of fact, I didn't expand on this on Monday in
4 the presentation but I could explain very briefly
5 that as we indicated in our interrogatories, we
6 continually collect more information. After the
7 initial submission, we had commissioned two
8 consultants to get for us additional information on
9 how will the technology evolve over time. And they
10 gave us their best information as to what will happen
11 by 2009 or 10 or 11 with efficiency increases, cost
12 decreases. And that's what's been incorporated into
13 the update that I presented on Monday. However, the
14 general sense is that while we presented our best
15 guess, there's a greater likelihood that the cost of
16 wind will be higher than we're indicating than lower
17 because our forecast is assuming a 16 to 19 per cent
18 cost decrease and it's not certain that that will
19 happen. And so there's a greater likelihood that
20 those cost projection decreases will not occur than
21 will occur. But we're using those optimistic
22 assumptions as the basis of our work.
23 MR. SARGEANT: Thank you.
24 MR. ABRA: In the original filing, your NFAAT
25 filing in chapter 4, page 10, lines 23 through 28,
568
1 you gave various alternatives that Manitoba Hydro
2 might consider with respect to wind development. And
3 the three alternatives that you gave were Hydro doing
4 it on its own or doing it as a joint venture or
5 purchasing wind from a NUG as you referred to it or
6 as a Non Utility Generation company.
7 And it's specifically, as I say, at lines 23
8 through 28 where you said, and I quote,
9 "Such a development could include one
10 or more of Manitoba Hydro solely
11 owning the wind development;
12 2. Manitoba Hydro owning the
13 development in conjunction with
14 another developer such as contemplated
15 in the January 2003 Joint Venture
16 Agreement with Shell Canada; and/or
17 3. Manitoba Hydro purchasing the wind
18 power through Power Purchase
19 Agreements with NUGs."
20 Now, I assume there are pros and cons to each
21 of these alternatives and is there a preferred option
22 that Manitoba Hydro is sort of aiming in the
23 direction of at the present time?
24 MR. ADAMS: Each option would have different
25 characteristics and there are benefits associated
569
1 with each one that may or may not be associated with
2 the other ones. For example, Manitoba Hydro does not
3 pay income tax. Therefore accelerated capital cost
4 allowances which can be very attractive to somebody,
5 a company who is paying a lot of income tax somewhere
6 don't create any value for us.
7 So when a technology needs that sort of
8 assistance to get it over the hump to make it
9 economic, it's more beneficial to a private company
10 to do that than it is for us.
11 So the opportunity that's likely to present
12 itself first from our perspective is one or more
13 private companies operating as a NUG, generating the
14 wind, taking advantage of all the federal subsidies
15 that are available, the income tax subsidies -- or
16 not subsidies, income tax --
17 MR. ABRA: Depreciation. I was going to say
18 avoidance. I'm not too sure that's the right word.
19 This time of year it's attractive to all of us.
20 Where they have the opportunity to take
21 advantage of some of these sort of things and we
22 can't. And in those circumstances, it makes sense
23 for us to purchase the energy from them at fair value
24 for us. And it's more likely that they will be able
25 to make a go of it than we can.
570
1 The advantage of us developing ourselves in
2 the long-run is basically we get to keep all the
3 profit, assuming there is some. We can usually
4 borrow money at a price that's as low or lower than
5 private people, particularly in the long term.
6 Short-term money, sometimes other people can do
7 better. So once the technology becomes mature, it's
8 fairly economic. At that point, it probably makes
9 sense for us to do it on our own.
10 The third option doing it as a joint venture
11 is, as we discussed yesterday, we've had lots of
12 experience building and operating Hydro plants. We
13 don't have any experience building and operating wind
14 farms. And so doing it a joint venture with somebody
15 who is in that business is a good opportunity for us
16 to partly benefit from their ability to take
17 advantage of the income tax and the subsidy programs
18 and partly to learn and develop our own skill set.
19 So unfortunately, the world never comes in
20 nice tidy chunks. But if you could organize things,
21 the way to do it in our minds is, first, buy from a
22 NUG. Secondly, get into joint ventures with NUGs.
23 And then as we get more and more comfortable with the
24 whole process, then we become the wind developers.
25 Following pretty much what happened with the Hydro
571
1 technology 100 years ago.
2 MR. ABRA: Is there any move towards any of
3 the three at the present time or the sort of the
4 order that you've just referred to them, Mr. Adams,
5 or is it still in the planning stages?
6 MR. ADAMS: We are actively negotiating with
7 one NUG that we -- or rather, as I said yesterday, I
8 hate to predict the outcome of any negotiation.
9 MR. ABRA: No, I understand.
10 MR. ADAMS: We're hoping that we'll come to an
11 agreement in the very near future.
12 MR. ABRA: That would be the first such
13 agreement that you would have negotiated?
14 MR. ADAMS: Yes.
15 MR. ABRA: Okay. And that's with a NUG?
16 MR. ADAMS: That's with a NUG.
17 MR. ABRA: Thank you.
18 MR. ADAMS: There are several other potential
19 NUGs that we are discussing with. I wouldn't use the
20 term negotiating at this point but presumably the
21 discussions. If it maintains the attractiveness for
22 both parties, we'll evolve into negotiations.
23 We do have a joint venture agreement with
24 Shell, with Shell Canada. There's not a lot of
25 activity on that one and my expectation is that
572
1 nothing will come of it in the very near future.
2 Now having said that, having been in the joint
3 venture negotiations for the best part of the year,
4 we've learned an awful lot that we would not have
5 learned otherwise. So we got part of the benefit
6 even though we didn't do the developing.
7 MR. SARGEANT: This NUG that you said you were
8 close to concluding an agreement, is that with wind?
9 MR. ADAMS: Yes. The other thing is we do
10 have a very extensive wind monitoring program in the
11 Province. I think Mr. Wojczynski mentioned it on
12 Monday. It's coming up for, well, over nine months
13 now. And once we've got a year's wind record, then
14 we can start to correlate that with the longer term
15 records that we have, that Environment Canada has at
16 monitoring stations. We're developing wind maps and
17 we'll be in a good position to fully understand the
18 wind resource in Manitoba the same way as we
19 understand the hydraulic resource.
20 And then, as Mr. Wojczynski says, as we start
21 to gain more knowledge about the engineering
22 facilities required to convert it to electricity and
23 these facilities become more economic, at that point
24 we'll be in a position to move forward and invest.
25 The third issue, and this one is critically
573
1 important to us is there is a limit to how much wind
2 you can put in any system. I go from a physical
3 perspective before the system becomes unstable and
4 from an economic perspective before you just can't
5 management the variability. And we are undertaking a
6 huge amount of work in those areas to ensure that,
7 firstly, we can continue to operate with the degree
8 of reliability that we've become accustomed to and
9 for which we have to maintain under the various
10 interconnection agreements that we have. And
11 secondly, that we can price the product properly so
12 as we can, well, firstly don't degrade our existing
13 product and secondly, make a decent margin in the
14 wind energy itself.
15 THE CHAIRMAN: There are some communities in
16 Northern Manitoba that are not currently served by
17 hydroelectricity. Rather I believe they are served
18 with diesel fuel, diesel generated electricity. How
19 close are we to providing an alternate source of
20 electricity to these communities at this present time
21 in terms of the planning Manitoba Hydro has been
22 doing?
23 MR. ADAMS: We and the communities in some
24 cases themselves have done an awful lot of study of
25 alternative energy sources. Most of the studies
574
1 conclude that -- well, all of the studies that we
2 have seen conclude that the wind is not an economic
3 alternative in these communities. In some cases, it
4 does look attractive to build a Hydro plant, small
5 mini Hydro type of thing and run the electricity into
6 the community. In others, the most viable
7 alternative appears to be to build a transmission
8 line from the main grid.
9 And the difficulty is that in relative terms,
10 it's still very very expensive. And we have an
11 ongoing issue between us and the federal government
12 as to who pays for it. And that is an issue that was
13 discussed fairly rigorously at the Public Utilities
14 Board. I wasn't involved in that but it was very
15 recently.
16 MR. MAYER: We were.
17 MR. ADAMS: You were, I appreciate that. So a
18 major concern for Manitoba Hydro is if we were to put
19 out the capital investment that's required to build
20 either a transmission line or a Hydro plant, we would
21 need to be assured that we would get reimbursed
22 particularly when, in our opinion, the primary
23 responsibility lays with the federal government.
24 THE CHAIRMAN: That begs the question, are
25 there negotiations and discussions to that effect
575
1 ongoing?
2 MR. ADAMS: I hesitate to answer that one
3 because I'm not personally involved and I honestly
4 don't know the current state of the negotiations. I
5 can undertake to find out and get back to you.
6 THE CHAIRMAN: I am surprised that you say
7 that the wind generation is more or less out of the
8 question because a number of scientific reviews have
9 lately been talking about that as an alternative or
10 as a wind generated electricity as having potential
11 for various locations in the Arctic. And if that is
12 the case, why can it not apply or what makes it
13 different for places like Shamattawa or other
14 locations in Manitoba?
15 MR. ADAMS: It's a good question, and as Mr.
16 Wojczynski said, they are all good questions.
17 The key issue, well there are several key
18 issues. With a wind -- firstly, believe it or not,
19 these are not particularly good wind regimes. The
20 best wind regime in Manitoba is actually in the
21 south, south central part of the Province in the
22 Letellier, Morden area. As you go into the central
23 parts of the Province in the north, Brochet, Lac
24 Brochet, Shamattawa, the wind resource is not really
25 as good. So wind generation there is very expensive.
576
1 Second thing is you still need the diesel
2 generators or some other mechanism to provide the
3 electricity when the wind is not blowing. So the
4 saving is merely, and I don't use the term in a
5 derogatory sense, all you save with the wind is the
6 diesel fuel itself. You don't save the storage
7 facilities, you don't save the winter road
8 activities, you don't save capital cost of the
9 generation itself.
10 So when these things are studied in detail and
11 aggressively, the wind just doesn't start to look
12 attractive. What starts to look attractive in
13 relative terms, particularly for places like
14 Shamattawa, is building a transmission line. But
15 it's still a difficult one to finance.
16 THE CHAIRMAN: Thank you.
17 MR. ADAMS: I forget myself. The one thing
18 that does look reasonably attractive, not at
19 Shamattawa but Brochet and Lac Brochet is the
20 potential for a small Hydro plant. And we've worked
21 quite closely with the First Nations and the
22 communities in the area and they actually have
23 engaged their own consultants and work with us to
24 find out what is possible, what can be done and how
25 could it be financed.
577
1 THE CHAIRMAN: Hydroelectric?
2 MR. ADAMS: Yeah, hydroelectric. Mini Hydro
3 plant.
4 MR. WOJCZYNSKI: There are a couple of other
5 just details that might be helpful that if you're
6 looking at these small sites, the wind generation
7 becomes much more expensive on a per-kilowatt hour or
8 per-kilowatt basis when you go for the smaller
9 facilities. You're talking about relatively small
10 communities. So for each tiny little community, the
11 relative cost of the wind generation is much higher
12 because you're putting in a small turbine in addition
13 to all the factors already mentioned.
14 Another awkward incident, if you're talking
15 about communities that don't have road access, you
16 need to generally have cranes, fairly big cranes.
17 And most of the communities that we're referring to
18 here don't have road access so that makes it
19 immediately much more difficult whereas some of the
20 Arctic communities, not along the Bay coast, for
21 example, but in other places that may very well have
22 road access. So there are many issues.
23 MR. MAYER: None of the four diesel
24 communities have all weather road access.
25 MR. WOJCZYNSKI: That's right.
578
1 MR. ABRA: In your original NFAAT filing at
2 pages 12 and 13, you discussed uncertainties that
3 exist with respect to wind generation. And they
4 included things such as economies of scale, wind
5 capacity factor, need for transmission upgrades,
6 ability of Hydro to firm and shape wind, the export
7 capability and the availability of Government
8 subsidies. Now you already covered a couple of
9 those, Mr. Wojczynski, already. But do those
10 uncertainties still exist? And the ones that you
11 haven't canvassed already, if you can just comment on
12 them. For example, the economies of scale and the
13 need for transmission upgrades, the firming and
14 shaping and the export capability are topics I don't
15 believe you have touched on so far as far as the
16 uncertainties are concerned with respect to wind
17 generation.
18 MR. WOJCZYNSKI: I'm sorry, could you repeat
19 the ones that you felt I hadn't touched on? I'm sure
20 I hadn't.
21 MR. ABRA: Yes, the economies of scale, the
22 wind capacity factor Mr. Adams has commented upon
23 somewhat but you might expand on it. The need for
24 transmission upgrades I don't believe you've
25 discussed so far. The ability of Manitoba Hydro to
579
1 firm and shape wind. Now, you did describe what
2 shaping and firming was yesterday but I don't think
3 you discussed the ability. And the export capability
4 you really haven't discussed. And then you have
5 discussed of course the government subsidies and you
6 said that program is coming to an end.
7 MR. WOJCZYNSKI: So I'll go through those five
8 and let me say on the very last one, it's really
9 common to any new resources whether it's wind or
10 putting in Wuskwatim or putting in fuel cells or
11 whatever, like the export capability is common to all
12 of the resources we had looked at. So let me deal
13 with that one first and let me say it's a common
14 factor. And as Mr. Adams had indicated, we have --
15 there is a limit as to how much you can eventually
16 put in of a resource for a number of reasons. And at
17 some point, we will run into the transmission limits
18 of various kinds. So let's leave the export
19 capability as being just a common factor. I could
20 deal with the other four.
21 Economies of scale I just touched on when we
22 were talking about the northern communities and the
23 capital cost per kilowatt. So if you think about it,
24 that would be the best way to compare the cost of
25 building a facility. It goes up dramatically as you
580
1 get to smaller sized units. If you think of the kind
2 of units that traditionally people like to have
3 thought about wind power that every farmer can have
4 their own little wind generator in their backyard to
5 produce electricity for themselves and maybe there's
6 a little bit left over to sell somewhere else. You
7 are talking about a micro wind turbine facility and
8 the costs on per kilowatt basis are a number of times
9 higher than the large utility grade size which would
10 be in the order of 50 to 100 megawatts say.
11 THE CHAIRMAN: Mr. Wojczynski, my two
12 neighbours, when I was a small kid, had that.
13 MR. WOJCZYNSKI: Yes.
14 THE CHAIRMAN: Fifty years ago.
15 MR. WOJCZYNSKI: Did they have access to
16 central supply?
17 THE CHAIRMAN: No, that's all they had.
18 MR. WOJCZYNSKI: That's all they had. And if
19 that's all you've got, you're going to do what you
20 can. But if today someone were to be looking at
21 putting it in their backyard, and we're talking about
22 a relatively small thing here then, it will be much
23 more costly than obviously buying off the network or
24 of putting in a diesel generator.
25 So you're talking about 50 to 100 megawatts
581
1 large-scale size before you can get the economies of
2 scale that we have consumed in all of our work here.
3 MR. MAYER: While we're talking about small
4 generators, when we're travelling from Thompson to
5 The Pas at the back end of these hearings, it's my
6 intention to show the Board what I believe was the
7 last water wheel to generate power in Manitoba at
8 Wekusko Falls.
9 MR. WOJCZYNSKI: After the hearings maybe you
10 can give us all a tour there.
11 Let me give you an example of what might be a
12 large scale size utility size that you would need to
13 get the kind of economies of scale that we are
14 assuming in here and that you would have to be
15 talking about to get the lowest cost. If you wanted
16 to have a 100 megawatt facility using the latest
17 technologies that developers are looking at, you
18 would be putting in, for example, 63 units, 63
19 individual wind turbine plants, each one with a road
20 up to it or stub of a road, each with its underground
21 cabling from it. And each tower would, from the base
22 to the top of the blade, be something like 100 metres
23 high, or actually more than that. Over 100 metres
24 high. And so you'd need 63 of those to get 100
25 megawatts. And that would be the kind of facility
582
1 we're talking about. So that's a large kind of
2 facility and that's the economy of scale issue.
3 MR. SARGEANT: Each one is only putting out
4 about one and a half megawatts?
5 MR. WOJCZYNSKI: That's correct. And that's
6 sort of the state of the art or the sort of the most
7 modern design. There are designs that are being
8 looked at to go to even let's say five megawatts
9 each. But these are the kind where you're going
10 offshore. If you look at Denmark, you look at
11 Britain, now Holland and Germany, there's increasing
12 concern about having all of these on the land.
13 And so as a matter of fact in Denmark, the
14 rules are now that you are not allowed to build on
15 the land and you have to build offshore, out of site,
16 over the horizon. That does two things for you. It
17 gets it away from the competition for land use and
18 there's an aesthetic issue that increasingly people
19 are concerned about. But the other thing it does is
20 there's a much better wind resource when you're in a
21 flat area like in the ocean or in the middle of Lake
22 Winnipeg than if you're on land generally speaking,
23 and so you get a better wind resource. But if you're
24 building a facility in deep water, whatever depth,
25 more than just a few feet, now the base, the
583
1 foundation has become very expensive. So you'd much
2 rather have a single big facility than lots of little
3 ones. So that's why it's worthwhile putting in more
4 cost to have a bigger single facility like five
5 megawatts than four or three smaller ones.
6 When you're talking about on land right now,
7 it's more normal, if you're thinking of building a
8 new one, more like megawatt, megawatt and a half,
9 something like that. So that's the economy of scale.
10 Now if I should move onto the second question,
11 Mr. Abra, or second part of that?
12 MR. ABRA: Yes, I was just wondering. You
13 used the example of 63 turbines that would be
14 necessary to get 100 megawatts.
15 MR. WOJCZYNSKI: Yes.
16 MR. ABRA: What sort of capital costs would
17 there be involved in building that?
18 MR. WOJCZYNSKI: I have known and I know we
19 have it. Can I take an undertaking on that? I think
20 it's in the order of $180 million but if I could just
21 have an undertaking on that, get back to you to
22 confirm that?
23 THE CHAIRMAN: Yes.
24 MR. WOJCZYNSKI: We're talking about something
25 in that order.
584
1 (UNDERTAKING MH-10: Advise what sort of capital
2 costs would be involved in building 63 turbines
3 necessary to get 100 megawatts)
4
5 MR. WOJCZYNSKI: Moving on, the second issue
6 would be the capacity factor.
7 MR. ABRA: Wind capacity factor, yes, you
8 touched on somewhat or Mr. Adams did.
9 MR. WOJCZYNSKI: So if I could just explain
10 what we even mean by that first of all. It's
11 intuitively obvious that the windier a place is, the
12 better the wind generation is going to be and the
13 more economic. That's obvious. The way we measure
14 the windiness, there's different ways you can do it.
15 But the simplest way, and this isn't how the
16 technical specialists would do it but I think it's
17 the best for our discussions here today, is what we
18 call capacity factor. And that is, very simply put,
19 if you think of there being 365 days of the year and
20 you think of a 35 per cent capacity factor, what that
21 means out of the 365 days of the year, just over 100
22 of those days, call it 130 days, let's say 130 days
23 of the year, it's like that wind turbine would be
24 running non-stop at the full amount. And then at the
25 end of the 130 days of the year, it would stop
585
1 producing and go to zero and produce zero for the
2 rest the year. And that's the simplest way of
3 explaining the capacity factor.
4 I can give you a more technical explanation.
5 It's the average energy production over the total
6 potential energy production if it would be running
7 flat out all days of the year. You can choose
8 whichever explanation.
9 So now, the amount of wind is critical to the
10 economics of wind, the speed of the wind, the average
11 speed of the wind.
12 And perhaps a good explanation also in this
13 capacity factor is that you look at something like
14 Wuskwatim with its 200 megawatts, its average
15 capacity factor is 85 per cent. Our best guess in
16 Manitoba for the best wind resource is probably in
17 the order of 35 per cent capacity factor. Wuskwatim
18 is 85 in the order of. So you get a lot more energy
19 output from the Hydro plant.
20 MR. ABRA: In essence, what you're saying is
21 the efficiency is significantly less, or is it?
22 MR. WOJCZYNSKI: You could think of it as
23 efficiency.
24 MR. SARGEANT: In our simple terms.
25 MR. WOJCZYNSKI: In the basic terms, one could
586
1 choose to think of it that way, yes.
2 MR. MAYER: What kind of wind velocity do you
3 need to move one of these wind turbines? I think
4 that's what I'm having trouble understanding this.
5 You always have some wind but you don't always
6 have --
7 MR. WOJCZYNSKI: That's a good point. I tried
8 to give perhaps the overly simple explanation to say
9 that it's 130 days flat out and then it goes to zero.
10 That isn't how it really works. In reality, what
11 would happen for that same 35 per cent capacity
12 factor is, I'm making this up, for 30 days it might
13 be flat out full at 100 megawatts. And then at 30
14 days, it would be at 80 megawatts, and then another
15 30 days it would be at 30 megawatts. But if you have
16 very very light winds, and I offhand don't know the
17 number where that happens, but at some point there's
18 no wind. Even though there's a little bit of wind,
19 it's not enough for it to produce.
20 Ironically, for most of the technologies, if
21 the wind is too high, they have to shut down the wind
22 turbine because the potential for mechanical damage.
23 So the extreme example if you had a hurricane or
24 tornado, those wind turbines shut themselves down
25 because of the danger of mechanical damage. You
587
1 know, so it's actually -- you know, there's a lot of
2 considerations there.
3 And the other factor, if you go back to our
4 Mathematics for a minute, the wind energy output in
5 terms of electricity is the cube function of the wind
6 speed. So in other words, if your wind doubles, you
7 get eight times as much power. So it's not the wind
8 speed doubles, you get twice as much power. It's the
9 cube function. So you get eight times the power.
10 So the amount of wind you get at the lower
11 speeds is not that important, it's more how much of
12 the time are you at the higher end.
13 So in Manitoba, we're getting more information
14 as to what the wind resource in Manitoba is. The
15 best guess generally right now with all the
16 information we have. And there's a certain amount of
17 commercial confidentiality on this but I think we can
18 just say that it's in the order of around 35 per cent
19 is the best wind resource we could get in the
20 Province. And that's actually a very good wind
21 resource.
22 There are some areas on land that are better
23 than that but it's actually one of the better ones in
24 Canada probably. But it's going to be restricted to
25 a few areas. It's not widespread. As Mr. Adams
588
1 indicated, some in the south central area, it's not
2 just throughout the Province.
3 So that was the second item. I hope that
4 covers it in sufficient detail.
5 MS. AVERY KINEW: I was wondering you have an
6 extensive wind monitoring program that's nine months
7 old? Is that Manitoba Hydro's program? It's the one
8 that the NUG is doing or?
9 MR. WOJCZYNSKI: Good point. We have seven
10 wind turbine monitoring stations or wind monitoring
11 stations and those are the ones that have been up for
12 nine months. There are others.
13 MS. AVERY KINEW: The Shell?
14 MR. WOJCZYNSKI: No, this is Manitoba Hydro's
15 own. Shell has had some up as well for more or less
16 the same kind of time frame. Another wind developer
17 Sequoia is one name that's used or St. Leon Energy,
18 they have had some monitoring stations up a little
19 bit longer than we have had. It could be there are
20 others as well but we're not privy to that.
21 MS. AVERY KINEW: How many do you have?
22 MR. WOJCZYNSKI: The seven are strictly
23 Manitoba Hydro's and we have full access to that data
24 obviously and we are analysing that and looking at
25 that as we speak. And we are looking forward to
589
1 getting more of the data.
2 MS. AVERY KINEW: And the co-venture with
3 Shell is another seven?
4 MR. WOJCZYNSKI: No, there were less from
5 Shell. I don't know if I'm allowed to say. I don't
6 know that they would want us to say how many they had
7 but I think it's probably safe to say they had less
8 than seven but I think I should probably not go any
9 further than that.
10 MS. AVERY KINEW: And there are none in the
11 north?
12 MR. WOJCZYNSKI: We have one wind monitoring
13 station not in the far north but just north of Lake
14 Manitoba we have one and then we have another one
15 just north of Cedar Lake. We had hoped by placing it
16 there that we were going to capture the wind coming
17 off of Cedar Lake. And there's a little bit of a
18 ridge of land there. So that's as far north as we've
19 gotten.
20 I should add that one of the things that we
21 did back in 1992, we took a look at wind in Manitoba
22 back in 1992 before the capital costs came down in
23 the technology and it got better. And we looked
24 around the whole Province, did an initial assessment.
25 And one of the things that's always available before
590
1 all these monitoring stations are put up is
2 Environment Canada data and we did an intensive
3 assessment of that at that time.
4 The difficulty with that, though, is their
5 measurements are lower, like 20, 30 metres off the
6 ground. The wind turbines are much higher and you
7 get a stronger wind further up. So all these
8 monitoring stations are like of 60 or 70 meters
9 height. And so that's why you put in the stations.
10 Part of it is you get higher elevation.
11 So we know from the Environment Canada data,
12 even without putting monitoring stations all over the
13 north, that generally speaking, the wind in the
14 northern locations with the possible exception of
15 Churchill is not as good as, say, around Letellier.
16 MS. AVERY KINEW: How are you going to compare
17 your data with Environment Canada's if their metres
18 are low?
19 MR. WOJCZYNSKI: What we do, and we have
20 experts who are better at -- well, we hire the
21 experts to do that. And we did a request for
22 proposals and we hired the best consultant we could
23 get who has done that themselves and for others. And
24 they've got meteorological experts and experienced
25 experts who take advance statistical techniques and
591
1 take our wind data and take the wind data from all
2 the local stations including the Winnipeg airport,
3 but there's closer by ones, Glenboro for example.
4 And they do statistical correlations on a
5 minute-by-minute, hour-by-hour, day-by-day,
6 week-by-week, year-by-year basis and they use all
7 kind of techniques that only statisticians can
8 understand to determine the correlation and use that
9 information.
10 So it's not strictly just the wind station
11 itself. We correlate into the other information and
12 we get some long-term reliability into the data.
13 MS. AVERY KINEW: Okay, thank you.
14 MR. WOJCZYNSKI: Thank you. That was item two
15 on your list, Mr. Abra.
16 MR. ABRA: Yes.
17 MR. WOJCZYNSKI: Shall I move onto item 3?
18 MR. ABRA: Yes, just the transmission
19 upgrades.
20 MR. WOJCZYNSKI: There are two aspects to the
21 transmission upgrade issue. One aspect is what we
22 call the project, what I will call the project
23 transmission cost. And we have discussed this in our
24 second round interrogatories but I'll just do it
25 without reference to that right now.
592
1 The project transmissions costs are you build
2 a wind facility and you obviously have to hook up
3 from that wind facility. Let's talk about this 100
4 megawatt one. Hypothetical 100 megawatt one at
5 Letellier, which nobody is looking at Letellier right
6 now but let's just say they were. You would have to
7 build a transmission line to go from the wind turbine
8 facility to the nearest high voltage network. And
9 that would be a 230,000 volt, 230 KV network.
10 So the project would have to immediately pay
11 for the cost of a substation at the wind site and
12 then a transmission line overhead with the towers and
13 everything. Hook into the station, a local station
14 or into the 230 KV network and there's the direct
15 cost of the line and all the switch gear and breakers
16 and station equipment and transformers and all of
17 that.
18 So those are fairly straightforward actually
19 to estimate because it's pretty clear what has to be
20 put in. And that is included normally in the project
21 cost, for instance, what we put in our submission for
22 the project cost and the levelized cost.
23 The second part of it though, and this is what
24 Mr. Ron Mazur at the end of the table is an expert at
25 and one of the things he does and his whole group
593
1 does is when you add a new facility into a network,
2 in addition to the project transmission that I just
3 talked about, depending on the specifics of the
4 network and how much you are trying to add, you may
5 have to reinforce other places in the network not
6 just in the local area. And you may have to add more
7 transmission lines, you may have to upgrade the
8 transmission lines. You may have to add new
9 equipment. And Mr. Mazur could explain more if you
10 wanted to get into more detail on that.
11 I'll just call those network upgrades for the
12 moment. And so when we talk about uncertainty on the
13 transmission, if you are adding one, let me use the
14 hypothetical example again, adding one 100 megawatt
15 facility in an area, it could be that you've just got
16 to add the local project transmission cost and that
17 it happens to be that there are no or negligible
18 network upgrades required and that's what we add into
19 the project transmission costs.
20 But it could be, on the other hand, that the
21 local network is already fully loaded up. And if you
22 add that 100 megawatts, not only do you have to do
23 the project transmission, you have to add all kinds
24 of transmission all over the place to be able to
25 reliably have that flow out to the rest of the
594
1 system. So there is uncertainty as to what the
2 overall transmission will cost depending on the
3 circumstances.
4 The last point here is that if you are adding
5 only one 100 megawatts in one region, that's fairly
6 straightforward except for what I just finished
7 saying. But if you go and add 200, 300, 400, 700
8 megawatts, never mind 1,000 megawatts in a region,
9 it's clear you're going to have to add a lot more
10 transmission. And so the amount of transmission cost
11 is going to depend on the circumstances and how much
12 wind you are adding.
13 MR. ABRA: Sorry, I didn't mean to interrupt
14 you. But these uncertainties that you're talking
15 about, and you've given an excellent description of
16 them, but are they unique to wind or do they not
17 exist with any form of generation?
18 MR. WOJCZYNSKI: Yes, the same issues arise
19 that we've just talked about arise for all forms of
20 generation. And for instance, when we look at the
21 Hydro system, that's one of the first things we look
22 at. For Wuskwatim or Conawapa or Gull or whatever,
23 what is the transmission you have to put in for that?
24 The reason we're emphasizing the uncertainty
25 in the wind here is that if a person looks at the
595
1 cost of putting in wind and says what is the cost of
2 putting in wind, 100 megawatts of wind, it should
3 only be this. You say no, no, no, no. It depends on
4 the circumstances.
5 And so it's the same if you're putting in a
6 gas generating station or a coal station, you can't
7 just look at the cost of that, you would have to look
8 at where you put it. But the advantage of the coal
9 station or, in particular, natural gas station is you
10 can sort of locate it wherever it's convenient for
11 the transmission system. That may not be the case
12 for the wind.
13 The wind is going to be speedy where the wind
14 is going to be speedy and you can't force it to be
15 somewhere else. Whereas a gas generation station,
16 you can relatively simply put a gas pipeline where
17 you want and then pick the best location, optimize
18 your location where it's not that easy to do that for
19 the wind.
20 MR. ABRA: No, I understand. But that kind of
21 uncertainty would similarly exist though for
22 hydroelectric generation, would it not? I mean you
23 can only build the generator where you've got a fast
24 enough running water and so on.
25 MR. WOJCZYNSKI: Yes. The issue here is if
596
1 you go back to that levelized cost chart that I
2 presented, the hydraulic cost, let's say for
3 Wuskwatim, exactly includes the transmission cost
4 that's been required because we know exactly where
5 Wuskwatim is going to be and we studied it for years.
6 And the transmission planning people know exactly
7 what they are going to have to do.
8 When I presented the wind levelized cost in
9 that chart, to be fair or to be conservative about or
10 optimistic, let me use that phrase, to be the most
11 optimistic about the wind and not be accused of being
12 biased against the wind, what we put in there was the
13 levelized cost assuming there aren't these big
14 transmission upgrade costs. So that was at the very
15 first instance.
16 We're moving beyond that and saying if you're
17 going to look at wind that is an alternative to
18 Wuskwatim, and it's a true alternative. Like some
19 people have proposed that, well, you should look at
20 putting in wind instead of Wuskwatim. Take that same
21 amount of money and put it into wind. So as soon as
22 you do that, we're talking about 450 megawatts of
23 wind, not 100 megawatts or 50 or 200.
24 The second issue is Manitoba Hydro has already
25 indicated that in its plans, we're going to put in
597
1 250 megawatts of wind. The alternative to Wuskwatim
2 is not that first 250. It's saying, okay, given that
3 Manitoba Hydro is going to put in 250 megawatts of
4 wind, the alternative now to Wuskwatim is to put in
5 another 450 for a total of 700 megawatts of wind.
6 Now, issues like your transmission costs are going to
7 be a lot more important.
8 MR. ABRA: The chart that you were referring
9 to that you prepared, is that under tab 8 of the book
10 of documents that I gave you yesterday? Is that the
11 chart you're talking about?
12 MR. WOJCZYNSKI: No, sir. It is --
13 MR. ABRA: Because I was going to ask you some
14 questions actually related to tab 8.
15 MR. WOJCZYNSKI: What I was referring to
16 actually was in chapter 4, page 36, figure 4.5 is
17 what I was referring to.
18 MR. ABRA: Oh right, okay. The one that was
19 up yesterday?
20 MR. WOJCZYNSKI: Yes, yes. Yes, that's right.
21 In that one, we did not include what I'm calling this
22 network transmission. We only included project
23 transmission for the reasons I've already mentioned.
24 MR. ABRA: Yes, yes.
25 MR. MAZUR: Mr. Chairman, if I can just add
598
1 something to Mr. Wojczynski.
2 THE CHAIRMAN: Mr. Mazur.
3 MR. MAZUR: There is one aspect of wind that
4 is far different than at least some of the
5 conventional and that's what I will call voltage
6 control. We hear turning up the dimmer switch to get
7 the lighting level. Most of the wind machines do not
8 have that and the wind suppliers will tell you yes,
9 we can address it and I fully agree they can but
10 there is a cost and that cost is significant because
11 you address it with external devices which, as Mr.
12 Wojczynski explained, are part of the network costs.
13 MR. ABRA: And this is unique to wind, Mr.
14 Mazur?
15 MR. MAZUR: It's unique to -- well, there are
16 other forms of new technologies may also have it but
17 it's certainly one of the challenges for wind
18 generation.
19 MR. ABRA: Okay. Just at page 24 of your
20 NFAAT presentation from the other day, Mr.
21 Wojczynski, is the comparison of the internal rate of
22 return for Wuskwatim versus wind.
23 MR. WOJCZYNSKI: Yes, sir?
24 MR. ABRA: Now, does this include the concerns
25 that you have expressed and so on with respect to
599
1 wind generation? Is it for that reason that the
2 internal rate of return is lower?
3 MR. WOJCZYNSKI: There are a whole bunch of
4 factors we've done in the updating, as I've tried to
5 explain briefly the other day. If you'd like, I can
6 explain what all the adjustments were.
7 MR. ABRA: But does it include these
8 difficulties you've just described?
9 MR. WOJCZYNSKI: Yes, it does.
10 MR. ABRA: Along with numerous others I
11 gather?
12 MR. WOJCZYNSKI: Well, without going through
13 the full explanation.
14 MR. ABRA: Yes.
15 MR. WOJCZYNSKI: We tried to say if you want
16 to compare a wind development against a Wuskwatim
17 development and on a truly competitive basis, what
18 would those costs be, which isn't exactly what we
19 tried to do in our original levelized cost table. So
20 we said and let's take our latest information we have
21 right now including the capital costs would be lower
22 in the future. And we did a bunch of other things
23 that are updates. And all of those including the
24 transmission cost issues, the wind integration cost,
25 they are all incorporated in the 6.1.
600
1 MR. ABRA: Okay. Good. Thank you. David, I
2 don't know if I asked you or not, CNF/MH/NCN.1
3 NFAAT-356(a). Was that one I asked you to --
4 DAVE: No.
5 MR. ABRA: In any event, it's on page 8 of the
6 book of documents I gave to you. If you're able to
7 dig that one up, you can put it up on the screen. It
8 would help those that are in the audience. It's
9 CNF/MH/NCN.1. That's the one. Thank you.
10 Now, first, was this document prepared or this
11 chart prepared either by you or under your
12 supervision, Mr. Wojczynski?
13 MR. WOJCZYNSKI: Yes.
14 MR. ABRA: Now, I gather that this analysis is
15 for wind only, is it? It's not the impact. It
16 doesn't equate to the impact to the Wuskwatim
17 project?
18 MR. WOJCZYNSKI: Yes.
19 MR. ABRA: Okay. Now, what revenue
20 assumptions are included in this document?
21 MR. WOJCZYNSKI: There are none.
22 MR. ABRA: None at all?
23 MR. WOJCZYNSKI: No. This is the, as I was
24 explaining the other day, we determined -- just wait
25 a sec. Let me step back. I retract that.
601
1 Yes, it does include the revenue assumptions.
2 This includes the revenue assumptions that we had
3 utilized back in the original submission and it's
4 consistent with the revenue assumptions, export rate
5 forecast and everything else that we had utilized in
6 the April 2003 submission that, for Wuskwatim,
7 yielded a 10.3 IRR.
8 MR. ABRA: Okay. Now you've listed the
9 capacity factors. What increases in capacity factors
10 are realistic, do you think?
11 MR. WOJCZYNSKI: What we had indicated in the
12 original submission was that our best guess was 35
13 per cent. Realistically, I think that is our best
14 guess and it would be unrealistic to expect it to go
15 significantly higher. In theory, it would be
16 possible in Manitoba to find something that might be
17 40 per cent but we think that's unlikely. And if we
18 did find some 40 per cent, you wouldn't find 700
19 megawatts of it in one place. You might find a
20 little bit here or there but not 700 megawatts.
21 MR. ABRA: Okay. What capital cost reduction
22 factors are realistic do you think?
23 MR. WOJCZYNSKI: Our best estimate today to
24 2009 is that there will be a 16 per cent reduction
25 from 2002 estimates. And if you went to 2010
602
1 inservice date, a 19 per cent reduction.
2 MR. ABRA: Okay.
3 MR. MAYER: Again in the interim, those
4 transmission upgrades you talked about or the lack of
5 them, it's my understanding it was the lack of them
6 that caused that rather nasty little black-out around
7 the Great Lakes last year; am I correct?
8 MR. WOJCZYNSKI: The lack of transmission was
9 a significant contributing factor. There are a whole
10 bunch of factors but transmission was a major issue
11 there.
12 MR. ABRA: I believe, although correct me if
13 I'm wrong, based on what you have said of a 35 per
14 cent capacity factor and with a 20 per cent capital
15 cost reduction, that brings us into about 10 per
16 cent, does it?
17 MR. WOJCZYNSKI: Okay. You used the 20 per
18 cent capital cost reduction. I would have -- our
19 best guess is 16 per cent to 2009. Oh, I see. If we
20 used 19 per cent, that will bring you to 10.
21 MR. ABRA: 15 per cent will be closer then?
22 MR. WOJCZYNSKI: Depends on your inservice
23 date. But anyways, 16 per cent is the best
24 information we have for the cost reduction 2009.
25 MR. ABRA: Okay. Now, how does that compare
603
1 to Wuskwatim, sir, with respect to the capacity
2 factor and the capital cost reduction?
3 MR. WOJCZYNSKI: Wuskwatim's capacity factor
4 is 85 per cent. But I think the thing we have to
5 compare against is the --
6 MR. ABRA: I'm sorry, the IRR, as far as the
7 internal rate of return.
8 MR. WOJCZYNSKI: If you just took the 9 per
9 cent, you can compare it to the 10.3 in Wuskwatim.
10 But I think as the wording below indicates, that
11 would be inaccurate on comparison and not a
12 meaningful one because you'd have to account for
13 other factors that aren't in this table.
14 MR. ABRA: Such as, as you said, the shaping
15 and the firming of wind power?
16 MR. WOJCZYNSKI: This table assumes that there
17 will be shaping and firming required but because this
18 table was -- as requested, this was the result of a
19 request.
20 MR. ABRA: Yes, I understand.
21 MR. WOJCZYNSKI: And the request was to
22 recalculate it for the same 250 megawatts of wind
23 generation.
24 MR. ABRA: Yes?
25 MR. WOJCZYNSKI: So on that basis, we
604
1 recalculated it. But the underlying factors would
2 change if we had such a capital cost reduction. So
3 that in reality, the IRRs would be less than that.
4 And I could explain if you wanted.
5 MR. ABRA: Would that be more in line then
6 with what the IRRs are on page 24 again, the one in
7 your submission on Monday?
8 MR. WOJCZYNSKI: Yes, it would be.
9 MR. ABRA: 6.1 per cent?
10 MR. WOJCZYNSKI: Yeah. And if you want, I can
11 take you from this table to the 6.1.
12 MR. ABRA: Well, I was just about to ask you.
13 What's the reason for the difference in the
14 discrepancy? Is it things such as firming and
15 shaping and so on?
16 MR. WOJCZYNSKI: Yes, it is and I can explain
17 that if you want.
18 MR. ABRA: If you could, please.
19 MR. WOJCZYNSKI: First of all, we've got the
20 7.6. Let's just take the 35 per cent capacity factor
21 line. I think you can see it.
22 MR. ABRA: Yes.
23 MR. WOJCZYNSKI: We indicate there for a 6 per
24 cent capital cost reduction, the IRR is 7.6 per cent
25 there.
605
1 MR. ABRA: Yes?
2 MR. WOJCZYNSKI: Just for the record, the
3 original submission assumed a 5 per cent reduction
4 and this IRR there was 7.5 per cent. So I just want
5 to demonstrate that this table is consistent with the
6 original submission back in April for the 250
7 megawatts, okay.
8 So secondly then, we get -- a 6 per cent
9 reduction gives us 7.6 IRR. If we go to the 15 per
10 cent reduction, it shows a 9.0 per cent IRR on this
11 table. Our best guess is that it's a 16 per cent
12 reduction, not 15. So that gives you a 9.2 per cent
13 IRR, okay. So I'm just doing this step by step.
14 The next thing is we used, in that original
15 work, an integration cost for the transmission and
16 generation operation of about .9 cents a kilowatt
17 hour. And if you go to these lower capital costs and
18 you go to 700 megawatts of wind in Manitoba, meaning
19 250 that we are planning on doing regardless, 450
20 megawatts to compete with Wuskwatim, and now you're
21 talking about up to 700 megawatts of wind in Manitoba
22 plus we're talking about more wind elsewhere because
23 of these capital cost reductions, our best estimate
24 is that the wind integration cost should be about one
25 and a half cents instead of .9 cents that we assumed
606
1 in the submission. That takes us to 7.8 cents per
2 kilowatt hour.
3 The other factor is if you're talking about
4 700 megawatts of wind generation in south central
5 Manitoba and it's not spread out for the Province
6 necessarily, it's going to be relatively focused, our
7 best guess is that we'll have to put in significant
8 additional network transmission that I was referring
9 to. That adds another .8 -- reduces the IRR by
10 another .8 per cent taking the overall IRR down to
11 7.0 per cent now.
12 Then we said, well, let's take our latest
13 updated information, our latest information on
14 everything and let's also assume that Wuskwatim isn't
15 in the base case. So it's a true Wuskwatim versus
16 wind comparison. And let's also assume, to be a fair
17 comparison to Wuskwatim, that at the end of the 20
18 year life of the wind, we keep some of the facilities
19 that will replace the worn-out equipment and you
20 extend the life of the wind facility by another 20
21 years but you don't replace all the equipment, just
22 three-quarters of it, that makes the wind look
23 better. You add all that up together and the IRR
24 goes up .2 per cent. So that takes you to 7.2 per
25 cent.
607
1 Now that we've got more experience than others
2 do, the land lease and O&M costs were slightly
3 understated in the original submission. That takes
4 off a .1 per cent.
5 Then the last item is we don't think that if
6 you're talking about these cost reductions, 16 per
7 cent, and that the federal subsidy would be
8 applicable for going from 250 megawatts of wind in
9 Manitoba to 700 megawatts of wind in Manitoba. We
10 don't believe that's at all a realistic assumption.
11 And that in that case, you should take the WPPI
12 incentive out of this table, out of the calculations,
13 that take us down to 6.3 per cent.
14 These are all approximate adjustments. The
15 6.3, 6.1, approximately the same. If we had more
16 time, we can do a better exact calculation. But that
17 takes you more or less to the number I presented on
18 Monday and it's contained on --
19 MR. ABRA: On page 24?
20 MR. WOJCZYNSKI: Page 24, yes.
21 MR. ABRA: Okay. Thank you very much, sir.
22 MR. WOJCZYNSKI: All right.
23 MR. ABRA: Mr. Chairman, that ends the
24 questions with respect to wind unless the Members of
25 the Commission have any questions?
608
1 THE CHAIRMAN: No more questions here.
2 MR. ABRA: Okay. Thank you. I'd like to turn
3 briefly to non utility generation or NUGs as
4 everybody has been referring them to.
5 In your original submission, you indicated
6 that there had been many inquiries about NUGs. And
7 so far, I think as you've testified already, Mr.
8 Adams, you haven't entered into any NUG arrangements
9 with anyone. And you've also indicated at
10 CAC/MSOS/MH/NCN.1 NFAAT-34(a), you've given a list of
11 the conditions that would attach to NUGs.
12 MR. ADAMS: Sorry, I didn't get the number.
13 MR. ABRA: It was CAC/MSOS/MH/NCN.1
14 NFAAT-34(a). And basically what you said in that
15 information request that Manitoba Hydro will offer to
16 purchase electricity produced by NUG if the NUG
17 satisfies the following requirements.
18 "NUG in Manitoba will be required to
19 supply their own load first.
20 NUG accepts the pricing as determined
21 by Manitoba Hydro.
22 NUG must meet the Manitoba Hydro
23 connection criteria.
24 NUG must not degrade Manitoba Hydro
25 system reliability.
609
1 NUG must satisfy Manitoba Hydro that
2 they will obtain the required
3 licences, permits and approvals.
4 For a NUG greater than two megawatts,
5 this also includes obtaining an Order
6 in Council from the Provincial
7 Government and a legally binding
8 contractual agreement must be
9 secured."
10 And then you go on the next page,
11 "For a NUG less than 2 megawatts, the
12 duration of the contract must be
13 specified; however, the duration is
14 flexible and left to the NUG's
15 discretion.
16 For a NUG greater than 2 megawatts,
17 the duration of the contract must be
18 specified and mutually agreeable
19 between Manitoba Hydro and the NUG.
20 And special consideration may be
21 provided to the NUG that support or
22 increase industrial and economic
23 development in Manitoba."
24 Now, those are the requirements that you've
25 laid down to date apparently. Are they too
610
1 stringent? Is that the reason that you have not
2 entered into any NUG contracts to date or what's the
3 reason for having as many requirements as you do?
4 MR. ADAMS: Most of these requirements are
5 pretty standard in the electricity industry. There
6 is nothing in, other than the commercial issues,
7 which I'll come back to, there's nothing in here that
8 is not equally applicable to a generating station
9 built by Manitoba Hydro, whether it's a thermal
10 station, a Hydro station or a wind station or
11 anything else.
12 There's a couple that are of a commercial
13 nature. Firstly, as we are all aware, we do not need
14 more energy in Manitoba for 15 years, probably more,
15 for Manitoba requirements. So any energy that we buy
16 or manufacture, we've got to be able to sell.
17 And so the pricing issue, as determined by
18 Manitoba Hydro, is this is the value of the energy to
19 us. We can't afford to give you any more. We're not
20 going to subsidize it.
21 The one that may be a little interesting is
22 that we say you've got to satisfy your own load
23 first. That is a feature of the fact that the prices
24 that we charge customers in Manitoba are below market
25 value. And we have taken the position, after
611
1 considerable discussion inside the company, that we
2 will not sell you electricity for 3 cents on the one
3 hand and then buy it back from you on the other hand
4 at 5 cents.
5 MR. ABRA: I think we can understand that.
6 MR. ADAMS: We've had people make a reasonable
7 argument that you could consider an alternative
8 approach. The connection criteria are the sorts of
9 things that Mr. Mazur gets into, safety. At the one
10 extreme, we need to be able to control the output of
11 the station. So if we've got people on the line,
12 they don't get electrocuted by back-feeding. That
13 the harmonics and all the other nasty things that
14 large electrical machines can put into the system are
15 filtered out before they start blowing up the
16 computer in your home and those sorts of things.
17 System reliability, it's not an option for us,
18 it's an obligation of our interconnection agreements
19 and our membership and the NUG. And so anybody
20 joining the system has got to meet those criteria.
21 You've got to get the licences whether it's an
22 environmental licence, a permit, a municipal
23 requirement. And the lower the province is, if it's
24 more than 2 megawatts, you've got to get an Order in
25 Council just the same as we do.
612
1 MR. ABRA: So those are standard then?
2 MR. ADAMS: They are standard. We're not
3 going to hook up anything unless we've got a legally
4 binding contract. These contracts are complex. I
5 hate to say this but we're getting as many lawyers as
6 we've got engineers working for us now.
7 MR. MAYER: Maybe if you had them when you
8 dealt with those diesel contracts, we wouldn't be
9 having this problem.
10 MR. ADAMS: Mr. Mayer, I agree.
11 MR. ABRA: There's an old saying. If you
12 don't have one lawyer, you don't need three.
13 THE CHAIRMAN: Now, this panel hearing was
14 going along fine so let's keep this that way, please.
15 MR. ADAMS: We're certainly not going to enter
16 into an agreement with somebody that is not legally
17 bound. Part of the reason for that is the value that
18 we can attribute to the project is our ability to
19 sell the energy forward. Mr. Cormie can get a lot
20 better price for selling it next summer than selling
21 it tomorrow. So if we're selling it on the
22 expectation it's going to be delivered, it better be
23 delivered. So we need a contract with penalties and
24 all sorts of things in there.
25 The one concession we do make is for a NUG
613
1 less than 2 megawatts. And I would comment that a 2
2 megawatt generating station is a very very large
3 machine. It's not the sort of thing that one would
4 put in his basement or in his garage.
5 We basically run the metre backwards. Now we
6 still, we don't have any of them. But in those
7 cases, we don't find ourselves commercially exposed
8 and we're prepared to take a lot more risk in terms
9 of contractual arrangements. And so we don't fix the
10 duration.
11 For large machines over 2 megawatts then,
12 clearly we've got to do all sorts of complicated
13 issues and we want durations times, renewal of
14 agreements. As I said, all the normal ramifications
15 associated with a large contract.
16 The last bullet is we will work hard with
17 somebody, particularly who has the municipal waste,
18 hog fuel at a forestry industry where they have a
19 waste disposal problem. We will work hard with them.
20 And within the framework that we set it out, see if
21 there's a way we can arrange things that makes it
22 possible for them to generate electricity basically
23 out of waste products.
24 The reason why there are none in the Province
25 today is primarily that we don't pay enough. We pay
614
1 what it's worth to us on the export market. And as I
2 said yesterday I think it was, to date, we have not
3 discounted that in any way to create a profit margin
4 for us. And the price simply isn't high enough to
5 cover the expense of generating it.
6 MR. ABRA: If those conditions are standard or
7 at least from the answer that you've given, what's
8 the reason that there aren't any NUG agreements up to
9 the present time or are there?
10 MR. ADAMS: I think I just said the reason
11 that we haven't been able to consummate an agreement
12 with anybody is they can't afford to do it at the
13 price that we can offer.
14 MR. ABRA: Okay. Thank you, sir. I'm sorry,
15 I misunderstood. If you go to CEC/MH/NCN.1
16 NFAAT-16(a), that's a question that was asked by us
17 of you during the first interrogatory stage. And in
18 that one, you've described, in further detail, the
19 NUG policy. And basically you've indicated, and I
20 quote,
21 "Manitoba Hydro will cooperate with
22 potential NUG to maximize the value of
23 their generation in conjunction with
24 the added benefit of shaping and
25 firming supplied by the Manitoba Hydro
615
1 hydraulic generation system. Manitoba
2 Hydro will offer the NUG a price based
3 on reselling the NUG power in the most
4 lucrative export market incrementally.
5 No profits will be taken by Manitoba
6 Hydro from the first 250 megawatts
7 assuming a 35 per cent capacity factor
8 for wind generation. Manitoba Hydro
9 offers this NUG price as either a
10 levelized price or a market price.
11 For a NUG less than 2 megawatts,
12 Manitoba Hydro utilizes a net billing
13 approach allowing the kilowatt hour
14 metre to essentially run backward to
15 credit the inflow of electricity to
16 Manitoba Hydro."
17 Do you have that in front of you, sir?
18 MR. ADAMS: Um-hum.
19 MR. ABRA: Now, these are the incentives that
20 you are offering, at least that's the way we
21 interpreted them is you considered those to be
22 incentives. Would it make sense to offer further
23 financial incentives to the NUGs in order to generate
24 cleaner sources of energy such as wind and solar?
25 MR. ADAMS: We don't believe that wind or
616
1 solar is any more environmentally preferable than
2 Hydro. We appreciate that others have different
3 opinions. But only way we can offer an incentive to
4 encourage further development of these source of
5 energies would be at the expense of our customers.
6 MR. ABRA: Okay. Now, the two megawatt
7 running the metre backwards, does that apply to the
8 tail block rate which, at present, is the lowest?
9 MR. ADAMS: It depends upon the rate class and
10 the specific characteristics which that customer
11 would otherwise be involved in.
12 MR. ABRA: So what, it depends on the manner
13 in which the rate is set for the customer?
14 MR. ADAMS: There would be both a demand and
15 an energy component of it.
16 MR. ABRA: Okay. So depending upon who the
17 customer is, it would be the tail block rate or the
18 initial block rate?
19 MR. ADAMS: It would start off as the tail
20 rate and depends -- tail block rate and depends how
21 far up the chain they moved.
22 MR. ABRA: Now, the tail block rate is the
23 lower of the two; is it not?
24 MR. ADAMS: Yes.
25 MR. ABRA: In some cases?
617
1 MR. ADAMS: Yes.
2 MR. ABRA: And that depends on who the
3 customer is?
4 MR. ADAMS: Not so much who the customer is
5 but what classification.
6 MR. ABRA: What class the customer is as to
7 whether or not they get the tail block rate or the
8 initial block rate?
9 MR. ADAMS: Yes, and how much they are
10 consuming.
11 MR. ABRA: Okay. If I might just have a
12 moment, Mr. Chairman? That completes my questions at
13 this point with respect to non utility generation.
14 I'm going onto demand-side management unless the
15 Panel have any questions?
16 MR. SARGEANT: Is it possible for a NUG to
17 pose any kind of a threat to the Hydro network? I
18 ask this largely out of ignorance. But based on some
19 of my reading of the new stories about the blackout
20 in Eastern North America last year and, you know,
21 what a failure in one part of a network caused this
22 huge massive failure all over the place. Is there
23 any risk of this sort of thing?
24 MR. MAZUR: If the protection systems and the
25 transmission interconnection is designed to adequate
618
1 standards, I don't believe there is. The issue with
2 things like the blackout are issues of multiple
3 failures, people not doing the things they should be
4 doing with regard to monitoring the power system and
5 protecting the liability. And typically, these
6 black-outs have always been the result of several
7 events occurring altogether at the wrong time.
8 And so I don't think one could make a general
9 statement that says a NUG could black out your
10 system.
11 MR. SARGEANT: Thank you.
12 MR. ADAMS: Mr. Sargeant, maybe I could expand
13 upon that. That refers back to Mr. Abra's question
14 twice removed that we will not allow somebody to hook
15 up to the system unless they meet those connection
16 criteria.
17 MR. SARGEANT: It was actually that response
18 that sort of prompted my thought on this. Thank you.
19 THE CHAIRMAN: While Mr. Abra is looking, a
20 while ago, Mr. Adams, I believe you made the comment
21 that you did not consider wind or other forms of
22 alternate energy as environmentally friendlier. I
23 wonder when we were listening to IRR information a
24 while ago, if that was taken into consideration, for
25 instance, physical environmental impacts and so
619
1 forth, aquatic impacts, et cetera? And when you made
2 those comparisons, did you take those factors in?
3 MR. ADAMS: Yes, we did.
4 THE CHAIRMAN: So when you're talking about
5 wind, and I know we're not talking about the
6 environmental impact at this point, but you're saying
7 you're taking into consideration such environmental
8 impact as you would for Wuskwatim or you're taking
9 that on an average?
10 MR. ADAMS: No, we're looking for -- at the
11 Hydro stations, it really doesn't make sense to treat
12 them generally, you really have to treat them
13 specifically. So when we look at Wuskwatim, Conawapa
14 or Gull which are all in our minds low impact
15 stations, we look at the specific environmental
16 impacts associated with that, with those. The costs
17 of compensation and mitigation and other things are
18 built into the price of it as they would be with the
19 wind farm.
20 Wind farms do not have no environmental
21 impacts but they are still a very low environmental
22 impact. And so compensation in that case is
23 essentially a lease payment to the person who owns
24 the land. It takes a different form. We would make
25 sure that we'd put it in a place where there weren't
620
1 any raptors or migratory birds.
2 So to the extent that you can compare these
3 sorts of things, when we say it's environmentally
4 preferable, we've tried to balance all dimensions of
5 those sorts of projects and say, in our opinion, the
6 Hydro projects that we're looking at are as good or
7 better than comparable wind projects.
8 THE CHAIRMAN: Well, we'll get back to that.
9 We'll get back to that and we'll see if that is
10 correct.
11 Maybe we can take a short break for now before
12 we go to the next series of questions. Just before
13 we do, I am advised by our secretary that the
14 pre-hearing exhibit list that we had thought would be
15 ready for today won't be available until Friday.
16
17 (PROCEEDINGS RECESSED AT 2:55 P.M.)
18 (PROCEEDINGS RECONVENED AT 3:14 P.M.)
19
20 THE CHAIRMAN: Thank you. Now that Hydro is
21 considering moving onto Portage and there's a request
22 for designs for Portage and Main and we haven't got
23 an Eiffel Tower, maybe we can get Manitoba Hydro to
24 consider some kind of wind-powered pylon to put on
25 that corner to activate some kind of signage at that
621
1 corner. I'll let you think about that.
2 I think, Mr. Cormie, you wanted to put some
3 information on the record?
4 MR. CORMIE: Yes, with regard to Manitoba
5 Hydro undertaking number 9 for the history of water
6 rentals. Prior to June 1, 1980, the water rental
7 rate was 21 cents per megawatt hour. On June 1,
8 1980, it became 53 cents a megawatt hour. April 11,
9 1985, it increased to 78 cents a megawatt hour. July
10 11, 1986, $1.93 per megawatt hour. April 1, 1987 to
11 $1.47 per megawatt hour. September 1, 1989 increased
12 to $1.63 per megawatt hour. And then April 1, 2001,
13 it went to $3.34 per megawatt hour.
14 THE CHAIRMAN: Thank you. Mr. Abra.
15 MR. ABRA: Before I get into demand-side
16 management, Mr. Wojczynski or anyone, Mr. Williams
17 has asked me by way of undertaking if you could get,
18 and we're asking today so that you have some time to
19 get it because Mr. Williams will be cross-examining
20 you Monday of next week. But if you go to page 24
21 again of your submission from last week, excuse me,
22 earlier this week. It feels like last week but just
23 Monday. And you've got the 6.1 rate of return shown
24 for 450 megawatts of wind for 2009, Mr. Williams is
25 wondering whether you can provide the supporting
622
1 calculations for that 6.1 IRR in preparation for his
2 cross-examination on Monday?
3 MR. WOJCZYNSKI: We can certainly provide
4 something and be glad to provide it and will do so.
5
6 (UNDERTAKING MH-11: Provide the supporting
7 calculations for the 6.1 IRR as shown on page 24 of
8 Mr. Wojczynski's submission)
9
10 MR. ABRA: Thank you. Going to demand-side
11 management now. David, I wonder if you can put up,
12 please, CAC/MSOS/MH/NCN NFAAT-1 question 121(a) that
13 has the two charts that we discussed earlier. Now, I
14 believe that the first one, can that be blown up at
15 all? Can you see that, Mr. Wojczynski? Who prepared
16 the chart and who was involved in the preparation of
17 it?
18 MR. WOJCZYNSKI: Lloyd.
19 MR. ABRA: Oh, okay. Mr. Kuczek.
20 MR. KUCZEK: Correct.
21 MR. ABRA: Now, the one that's up. Is that
22 the one that relates to gigawatt hours?
23 MR. KUCZEK: Yes.
24 MR. ABRA: And then the next one then relates
25 to megawatts. Now, I wonder if you could walk
623
1 through these two charts for us as they relate to
2 demand-side management?
3 MR. KUCZEK: Okay. We'll start with the
4 gigawatt hour graph. And the only difference between
5 the two is one is demand and one is energy and I
6 think Mr. Wojczynski explained that. And what the
7 graph represents is the top line is what's called the
8 economic potential. What we undertook was a market
9 assessment of what the DSM potential is in Manitoba.
10 And to do that, we started with a technology
11 assessment. And that's a comprehensive -- technology
12 assessment is developing a comprehensive set of
13 technologies and energy conservation measures that
14 you can put in place to save energy in the Manitoba
15 market-place.
16 So before you could figure out the economic
17 potential, you undertake this technology assessment
18 to see what those measures are. And then you
19 determine what the cost of conserved energy is. And
20 this is the effective cost of implementing those
21 measures on a per-unit basis. And it takes into
22 account the incremental capital and operating costs
23 relative to the normal measure that might go into
24 place.
25 And if we're talking furnaces, for example,
624
1 high efficiency furnaces, we'd be measuring against
2 what would be considered maybe a mid-efficiency
3 furnace going in place. So that would be the
4 difference in terms of the capital cost and the
5 operating cost. And you measure that against the
6 energy saved for each technology.
7 To determine the economic potential, you
8 measure that against the marginal value to the
9 company. And that's 6.15 cents. So some of these
10 measures cost more than that and some cost less. We
11 take those technologies and measures that cost less
12 than that and we assume that all of those are put in
13 place and that determines what the economic potential
14 is in Manitoba.
15 From that, we then determine that, yeah, we
16 determine what we refer to as the achievable
17 potential. And the achievable potential is a lower
18 number. And the reason for that is you can't achieve
19 100 per cent installation of all these measures and
20 technologies.
21 And to give you some examples so you
22 understand. If you've got basement insulation, some
23 houses might have their basement recrooms already
24 finished and so your upgrade might be to add
25 insulation to those basements if they don't have
625
1 insulation already. It's fairly difficult to get
2 people to rip their walls apart in the basement and
3 to add insulation.
4 Other people may not want to simply use the
5 technologies. Like CFL's compact fluorescent lights.
6 And so you can't get everybody to convert.
7 Temperature setback thermostats is another example.
8 Some people just don't want to set back their
9 temperature, they just prefer the comfort.
10 So we determine the achievable potential in
11 which we refer to as the most likely potential in the
12 market-place. And that's under the market conditions
13 that we have today. And then we determine what is
14 referred to as the, I forget the exact term, but it's
15 the high level estimate. And that's under more
16 favourable market conditions and so you can achieve
17 more energy saving or energy conservation measures
18 savings under those conditions.
19 MR. ABRA: And each of those are represented
20 on the graph?
21 MR. KUCZEK: Correct.
22 MR. ABRA: Now, the bottom line represents
23 what? I'm sorry?
24 MR. KUCZEK: The bottom line is our best
25 estimate of what is achievable.
626
1 MR. ABRA: The bottom line is your best
2 estimated of what's achievable?
3 MR. KUCZEK: Yes.
4 MR. ABRA: And then the middle line is what?
5 MR. KUCZEK: Referred to the upper limit.
6 That's under a different market condition. It's more
7 favourable market conditions for people to implement
8 these measures or technologies.
9 MR. ABRA: And then what's the top line?
10 MR. KUCZEK: That's the economic potential.
11 That's if everybody put in these measures and
12 technologies.
13 MR. ABRA: So is the top line the potential
14 DSM that may be available?
15 MR. KUCZEK: It's referred to as the economic
16 potential.
17 MR. ABRA: Yes?
18 MR. KUCZEK: It doesn't take into account
19 program costs, incentives that you might have to put
20 in place and converting people to implement these
21 measures that they simply don't want to do it. You
22 know, the example I gave you was the setback
23 thermostats. Some people just simply don't want to
24 do that. If they get up in the middle of the night,
25 to have the same temperature as they did when they go
627
1 to the bed.
2 MR. ABRA: I'm not making myself clear, I'm
3 sorry. If you look at this graph, and can you put
4 the other one up, David, because there's a
5 significant difference in both of them. The first
6 one, as you say, this one is gigawatt hours and the
7 other one is megawatts?
8 MR. KUCZEK: Right.
9 MR. ABRA: Now, both those charts show a
10 significant difference between the bottom two lines
11 and the top line?
12 MR. KUCZEK: Yes.
13 MR. ABRA: Do you agree?
14 MR. KUCZEK: Yes.
15 MR. ABRA: Well, I'm having difficulty
16 understanding. The way I understand it, but correct
17 me if I'm wrong, is that the top line effectively
18 represents the potential savings but the middle line
19 represents the most likely. And there seems to be a
20 significant discrepancy. Am I correct or am I
21 misinterpreting the chart?
22 MR. KUCZEK: The top line assumes that you --
23 MR. ABRA: Best case scenario?
24 MR. KUCZEK: Best case scenario. And let me
25 throw another example at you. Say you have a furnace
628
1 in your home right now and it's only two years old.
2 It would assume that you would replace that furnace.
3 So therefore, it's not necessarily economic. The
4 economic potential doesn't take into account the age
5 or the life of the technology at the current time.
6 MR. ABRA: You just do it?
7 MR. KUCZEK: Yeah.
8 MR. ABRA: Okay. So am I misunderstanding
9 these two charts because what struck me about them
10 was that the potential for savings and the most
11 likely scenario that are depicted on these charts by
12 the top line and the middle line, or the bottom line,
13 excuse me, is I guess I would have thought that the
14 middle line would have been closer to the potential
15 than it seems to be. In other words, it doesn't
16 appear that you're very optimistic, quite frankly, in
17 looking at the two charts that DSM is going to have
18 much impact?
19 MR. KUCZEK: Well --
20 MR. ABRA: Or am I misinterpreting it?
21 MR. KUCZEK: Yes, actually you are
22 misinterpreting it.
23 MR. ABRA: That's fine. I stand to be
24 corrected.
25 MR. KUCZEK: Yeah. I am just trying to figure
629
1 out a better way of explaining it to you. When you
2 do your economic potential, you're assuming ideal
3 conditions and there are no program costs, there's no
4 market barriers involved. And so everybody
5 implements all these measures.
6 MR. ABRA: Yes, I understand.
7 MR. KUCZEK: Okay.
8 MR. ABRA: In an ideal world, this is what
9 everybody would do.
10 MR. KUCZEK: Yes.
11 MR. ABRA: Yes, I understand.
12 MR. KUCZEK: Okay. So when you look at
13 actually what's realistic, it's a much lower number.
14 And to I guess give you some comfort in terms of the
15 realistic nature of this forecast, it's very similar
16 to the forecast that was done by B.C. Hydro as well
17 and their market potential study that they recently
18 did.
19 MR. ABRA: And their results were much the
20 same as yours?
21 MR. KUCZEK: Very comparable.
22 MR. ABRA: I see.
23 MR. KUCZEK: In the residential and commercial
24 market.
25 MR. ABRA: And the factors that you've
630
1 indicated are basically the factors that cause that
2 significant discrepancy such as the fact, as you
3 said, some people just don't want to turn down their
4 heat or the equipment is --
5 MR. KUCZEK: That's correct. Basement
6 insulation. You're just simply not going to get some
7 people in their older homes that have already
8 developed their recrooms to put insulation in. They
9 are not going to rip their walls down.
10 MR. ABRA: So although the steps may be
11 available, from a realistic point of view, you don't
12 think a lot of people are prepared to follow them.
13 Is that what you're saying?
14 MR. KUCZEK: Well, they are not even realistic
15 because it's not realistic to expect --
16 MR. ABRA: Maybe realistic is the wrong word,
17 I am sorry. But ideally, that could be implemented
18 may not be realistic.
19 MR. KUCZEK: Yeah.
20 MR. ABRA: And they would include things such
21 as going to equipment that's more efficient, or as
22 you say, re-insulating, turning down the heat and
23 that sort of thing?
24 MR. KUCZEK: Correct.
25 MR. ABRA: That's fine. Thank you very much,
631
1 David. Now, according to your filing, your
2 PowerSmart programs are estimated to have achieved an
3 annual load reduction of approximately 496 gigawatt
4 hours in energy and 185 megawatts in winter peak
5 demand. How is this amount estimated?
6 For your information, it's page 16, lines 4
7 and 5 of chapter 4 of NFAAT-6, or volume 1, excuse
8 me.
9 MR. KUCZEK: I think the number you are
10 referring to is what we've achieved to date. I
11 haven't found the reference.
12 MR. ABRA: How do you measure that?
13 MR. KUCZEK: There's various ways of doing
14 that. This is a measure of the energy savings that
15 we have achieved through our incentive. Most of them
16 are through our incentive based programs. And so
17 people fill in application forms and we get an
18 indication of what measures are put in place. And
19 through that, you determine how much energy savings
20 you are achieving through your programs.
21 MR. ABRA: Now, you've gone to say that the
22 target is 1,272 gigawatt hours per year and 356
23 megawatts by 2011 and 12 based on what you refer to
24 as resource acquisition strategy versus a lost
25 opportunity strategy. Now, you've made a change from
632
1 one strategy to another?
2 MR. KUCZEK: That's correct.
3 MR. ABRA: What's the reason for that, sir?
4 Firstly, what is the resource acquisition strategy?
5 What is a lost opportunity strategy and why the
6 decision to change?
7 MR. KUCZEK: Okay. A lost opportunity
8 strategy is, and I'll explain this through an example
9 again. I'll go back to an insulation example. Say,
10 for example, somebody is going to construct a recroom
11 and we would go in there. Well, before they put in
12 their recroom, there's an opportunity for us to try
13 to encourage them or influence them to put insulation
14 into the walls before they put the walls up. And so
15 we view that as an opportunity. So if we don't have
16 a program that tries to influence them, we view that
17 as a lost opportunity. So that's the lost
18 opportunity strategy.
19 The resource acquisition strategy would be
20 where we would go to that household before they would
21 construct the recroom and we would try to encourage
22 them through incentives or promotional material to
23 actually add insulation into the wall. And so they
24 would do that prior to them actually constructing
25 their recroom.
633
1 MR. ABRA: Okay. And that's the one that you
2 are attempting to follow now?
3 MR. KUCZEK: Yes. And the reason we changed
4 is because in the nineties, the value to us of
5 conserved energy was lower. And when the export
6 market went up in value, that changed the value to
7 Manitoba Hydro. So we adopted a more aggressive
8 strategy.
9 MR. ABRA: I see. So you want to save as much
10 as you can in Manitoba in order to take advantage of
11 it in the export market?
12 MR. KUCZEK: That would make economic sense
13 for the company.
14 MR. ABRA: Okay. So as you say, the resource
15 acquisition strategy is more aggressive than the
16 previous strategy you were following?
17 MR. KUCZEK: Correct.
18 MR. ABRA: And your projections then are
19 based, as you've said, for 2011 and 2012 are based on
20 that more aggressive strategy?
21 MR. KUCZEK: That's correct.
22 MR. ABRA: David, could you put up
23 CAC/MSOS/MH/NCN.2 of NFAAT question 45(a)? Now, that
24 indicates a levelized cost for DSM of 8,800 gigawatt
25 hours for historical and 13,900 gigawatt hours for
634
1 forecast. Table "B" I believe shows the forecast.
2 Can you bring up 45(b), David?
3 Now, how does this compare, and I don't know
4 whether, Mr. Kuczek, whether you're able to answer
5 this or not, to the other levelized costs that were
6 in figure 4.5 that we were dealing with yesterday?
7 We're at page 17 in the submission from Monday, Mr.
8 Wojczynski.
9 Just while we're going to that, you might
10 explain for us, I'm sorry, what the two charts
11 reference? Who is the best one, Mr. Kuczek or Mr.
12 Wojczynski? That being the one that's -- the second
13 chart relates to forecast, the first chart relates to
14 historical. You might differentiate between the two
15 of them what they represent.
16 MR. KUCZEK: Okay. I'm not an expert on the
17 other calculation but we're discussing it. The two
18 calculations are different. This is based on a
19 utility cost. The other is based on a resource cost.
20 The utility cost just takes into account our
21 administration and program design costs for the
22 program. And the resource cost is the overall cost
23 of the technology or energy efficient measure that
24 you're putting into place. So they are different
25 calculations.
635
1 MR. ABRA: Okay, but what does each one
2 represent? I'm sorry, I didn't follow your answer.
3 It's probably my own ignorance.
4 MR. KUCZEK: Well, if you were comparing it to
5 other options for the utility, the other calculation
6 would be a better calculation.
7 MR. ABRA: Which one? I'm sorry, sir.
8 MR. KUCZEK: The resource cost one that --
9 MR. ABRA: That's on page 17?
10 MR. KUCZEK: I'm not sure of the page but the
11 one that you had on the overhead one before,
12 comparing it to the alternative options.
13 MR. ABRA: Okay. So the previous one of 8,800
14 as opposed to 13,900?
15 MR. WOJCZYNSKI: What we have here, if you go
16 back to page 17, the table presented on Monday.
17 MR. ABRA: Right?
18 MR. WOJCZYNSKI: That you're referring to, Mr.
19 Abra. Those costs of 1.8 to 7.2 cents are the cost
20 that Mr. Kuczek just referred to as resource cost.
21 And that includes the incremental cost to the
22 customer if they are going to have to, for instance,
23 buy a different light bulb or insulate their home
24 more. So this 1.8 to 7.2 costs are the costs that
25 include the customer cost of doing so. And that's a
636
1 separate calculation than the ones we're just looking
2 at here. The ones that we just looked at here only
3 include the utility costs. So the utility may pay an
4 incentive to someone to say you weren't going to put
5 in this different light bulb or put in this bigger
6 amount of insulation? Well, here is an incentive and
7 here is some encouragement and here is some
8 advertising to get you to do that. But the utility
9 cost only has the advertising and incentive portion,
10 it doesn't include the additional cost that the
11 customer would have to pay.
12 So on page 17, that levelized cost table, what
13 we're trying to do is give an indication of the
14 levelized cost of putting in this additional source
15 in the province. So it's appropriate to have the
16 customer cost included in, which we do on that page
17 17. If you were going to try and take the
18 information that is in these two interrogatories that
19 you've just asked to us take a look at, the other
20 cost that one could say is missing from this is the
21 lost revenue that if a customer consumes one less
22 kilowatt hour, then you'd have to add that into these
23 costs to try and get closer to this table I presented
24 on Monday.
25 MR. ABRA: So it's difficult then to transpose
637
1 the two from the interrogatories into the chart on
2 page 17?
3 MR. WOJCZYNSKI: Well, the chart on page 17
4 already has done that.
5 MR. ABRA: Okay.
6 MR. WOJCZYNSKI: Those numbers 1.8 to 7.2 on
7 chart 17 or figure 4.5 in the original submission,
8 those numbers already have done what you've asked
9 for.
10 MR. ABRA: I see, okay. Thank you. Now, I
11 believe that during the course of the
12 interrogatories, the indication was made that the
13 past projects of DSM had been easier than future ones
14 are going to be. At least future ones, potential DSM
15 projects may be more expensive; am I correct?
16 MR. KUCZEK: In general that's correct but
17 there can be cases where there's some measures that
18 are fairly cost effective.
19 MR. ABRA: Okay. If you were to continue
20 adding to your DSM programs, is the impact on the
21 levelized cost already included in what's on page 17?
22 MR. WOJCZYNSKI: Sorry, can you repeat the
23 question?
24 MR. ABRA: Yes. Assuming for a moment that
25 the future DSM programs are going to be more
638
1 expensive than what you paid up to the present time,
2 how would that impact on the levelized costs?
3 MR. KUCZEK: This number that we have in
4 there is --
5 MR. ABRA: I'm sorry, when you say "in there",
6 you're referring to page 17?
7 MR. KUCZEK: Page 17, yes. This number takes
8 into account what we plan to achieve and the costs
9 associated going forward, so we have already looked
10 at that. And this is based on our 201 power resource
11 plan.
12 MR. WOJCZYNSKI: So it does include the higher
13 costs for the future programs.
14 MR. KUCZEK: Yes.
15 MR. SARGEANT: Over how long a period?
16 MR. KUCZEK: Looking forward 30 years. I
17 should mention we're revising that plan right now as
18 well.
19 MR. SARGEANT: This levelized cost of 7.2 is
20 over 30 years.
21 MR. KUCZEK: That's the calculations done over
22 30 years. When we do our DSM calculation for the
23 various technologies and measures in place, we do it
24 for 30 years for all products.
25 MR. ABRA: On page 17, if the costs, as you
639
1 say, are the existing or what's been undertaken or
2 planned is I believe the 1.8 and you have got 7.2 on
3 page 11 which is the potential for the next 30 years?
4 MR. KUCZEK: When you say page 11?
5 MR. ABRA: Page 17, I'm sorry.
6 MR. KUCZEK: The question was again, sorry?
7 MR. ABRA: The 7.2 is what you hoped to
8 achieve over the next 30 years?
9 MR. KUCZEK: No, 1.8 to 7.2 is a range of
10 costs.
11 MR. ABRA: Yes?
12 MR. KUCZEK: There's different DSM
13 initiatives. So that's just we hope to achieve those
14 initiatives within that range. Some cost less, some
15 cost more.
16 MR. ABRA: Okay. Now, if you increase the
17 costs in that regard, what impact is that going to
18 have on Wuskwatim? Any?
19 MR. WOJCZYNSKI: It would have no impact on
20 Wuskwatim. There's two parts to that question. One
21 is would this have any direct impact on Wuskwatim's
22 project costs? No, they are absolutely independent.
23 The second part of the question would be would it
24 affect our evaluation of the economic impacts of
25 Wuskwatim with all the system effects? And our
640
1 evaluation of Wuskwatim already assumes that this
2 amount of DSM will be in place.
3 We have done sensitivities that said if you
4 double the amount of DSM or you go to five times the
5 amount of DSM, then the economics of Wuskwatim are
6 only slightly decreased by 0.05 or 0.3 per cent. And
7 as a matter of fact, it turns out that if by some --
8 it's not technically -- it's not considered possible
9 to achieve the economic potential but if the
10 sensitivities indicate that if that amount of load
11 reduction were to occur, that's roughly the analysis
12 we did with the medium low load growth which is the
13 0.3 per cent reduction on IRR.
14 So even something like that, which is not
15 technically feasible to happen, would still not
16 significantly affect the Wuskwatim economics.
17 MR. ABRA: Assuming that you double your DSM,
18 what happens to the levelized costs of the DSM; do
19 you know?
20 MR. KUCZEK: It would be a range again.
21 MR. ABRA: Do you know what it is?
22 MR. KUCZEK: Well, we would only pursue those
23 DSM initiatives that are economic to us. And so I
24 don't think you would go beyond the economic
25 measures. And so I don't think it changes the range
641
1 there. It would still be within the range I guess.
2 MR. ABRA: Of the range that you've got here?
3 MR. KUCZEK: Well, there's technologies out
4 there, initiatives that you can actually pursue that
5 are much more costly.
6 MR. ABRA: Yes?
7 MR. KUCZEK: Those aren't within this range or
8 set of initiatives that we're pursuing right now.
9 MR. ABRA: Because of the cost of them?
10 MR. KUCZEK: That's correct.
11 MR. ABRA: You just don't feel that it's
12 appropriate under the circumstances?
13 MR. KUCZEK: They are not within our plan
14 because it's not cost effective.
15 MR. ABRA: Okay. And if you were to double
16 your DSM, would Wuskwatim be necessary?
17 MR. WOJCZYNSKI: Yes, it would still be
18 necessary. Necessary in the definition of the Need
19 For an Alternatives in that it provides a benefit.
20 So if we were to double the DSM, the economics of
21 Wuskwatim would only decrease by 0.05 per cent and
22 would clearly -- Wuskwatim would still be clearly
23 economic and still be beneficial and thus still
24 necessary, yes.
25 MR. KUCZEK: Before you go to the next
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1 question, I should clarify when you say double what
2 would the range be? I really couldn't say it would
3 be within that range because we do pursue just the
4 economic initiatives. So to double it, we may have
5 to pursue initiatives that would be more costly and
6 so the range wouldn't stay the same. So I may have
7 mislead you there.
8 MR. ABRA: Well, the next question I was going
9 to ask you actually arose from CAC/MSOS/MH/NCN.2
10 question 46(a) and you were asked,
11 "Please explain why there is
12 apparently such a large discrepancy
13 between economic and achievable DSM
14 potential in the industrial sector,"
15 in particular is what you were asked about. But your
16 response reads,
17 "The remaining potential tends to be
18 more costly and thus less financially
19 attractive for companies to
20 implement."
21 Now you're talking in terms of companies in that
22 particular question and answer. But the same applies
23 right across the system basically. Is that your
24 position, industrial and residential?
25 MR. KUCZEK: In general that's true, yes. The
643
1 industrial sector, we forecasted lower numbers and I
2 think the question was asking us why that was the
3 case in that sector?
4 MR. ABRA: Yes, that's correct.
5 MR. KUCZEK: And in the industrial sector,
6 we've been fairly aggressive in the last decade. We
7 have achieved some significant savings there. So
8 when we were projecting what we could achieve looking
9 forward, the numbers are lower for that reason and a
10 few other reasons.
11 MR. ABRA: Now, in 46(c) and (d), you say,
12 "The components of achievable
13 potential target excluded technologies
14 greater than five years away that
15 control or shift demand that
16 represents alternate source of
17 supply."
18 Why were those programs excluded?
19 MR. KUCZEK: It wasn't within the scope of the
20 -- just a sec. It wasn't within the scope of the
21 study that we contracted with the consultant.
22 MR. ABRA: Is there any reason it wasn't in
23 the scope?
24 MR. KUCZEK: We weren't comfortable with those
25 technologies being developed to assume that we can
644
1 actually achieve those.
2 MR. ABRA: What sorts of technologies are you
3 talking about, sir?
4 MR. KUCZEK: I couldn't give you specific
5 examples but I could I guess find out for you.
6 MR. ABRA: If you could. I mean obviously you
7 knew what they were at the time the answer was given.
8 If you could find out specifically what the
9 technologies were and why the decision was made to
10 eliminate them or not to proceed with them.
11
12 (UNDERTAKING MH-12: Advise specifically what the
13 technologies were, re 46(c) and (d) from
14 CAC/MSOS/MH/NCN.2, and why the decision was made to
15 eliminate them or not to proceed with them)
16
17 MR. ABRA: Mr. Chairman, I wonder if I might
18 just have a short recess. I'm sorry.
19 MR. SARGEANT: Can I ask one question.
20 MR. ABRA: Yes. I'm sorry, I didn't take a
21 break earlier and I've got a horrible headache. I
22 just want to get an Aspirin or something.
23 THE CHAIRMAN: Yes. In the meantime, maybe
24 there are other questions that can be asked.
25 MR. SARGEANT: I have a question, Mr. Kuczek.
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1 The ideal DSM, the chart that Mr. Abra had you bring
2 up earlier, the economic line, what does that assume?
3 Does it assume that every residence in Manitoba would
4 have tri-pane windows and proper insulation or is it
5 a lower threshold?
6 MR. KUCZEK: It assumes that those
7 technologies that we identified that would be
8 cost-effective to implement without any additional
9 programming or incentive cost would be actually
10 implemented. And I'll give you another example,
11 washing machines. There's efficiencies in washing
12 machines these days, front-load washing machines. It
13 would mean all of us would replace ours today. And
14 so that wouldn't likely happen.
15 MR. SARGEANT: So it's a lower threshold than
16 everybody having a very efficient house?
17 MR. KUCZEK: It's not just a house actually.
18 MR. SARGEANT: No, no. But I mean that it's
19 less than that. You are not assuming that every
20 house in the province has proper insulation which a
21 hell of a lot don't obviously.
22 MR. KUCZEK: We are assuming that all
23 basements would be insulated.
24 MR. SARGEANT: I mean if you just go out into
25 the West End of Winnipeg, all those houses built
646
1 before World War I or even 1930, most of those don't
2 have any insulation in them at all.
3 MR. KUCZEK: Yeah.
4 MR. SARGEANT: You're not assuming that in the
5 ideal world or your ideal economic line doesn't
6 assume that they would all be insulated?
7 MR. KUCZEK: No. That's actually referred to
8 as the technical potential and that's where you would
9 basically rebuild everything from start and put in
10 all those energy efficient technologies today.
11 MR. SARGEANT: So that would be a lot higher
12 than your economic line?
13 MR. KUCZEK: Yes.
14 MR. SARGEANT: But your economic line would
15 include basement insulation, you said washing
16 machines?
17 MR. KUCZEK: Changed lighting.
18 MR. SARGEANT: Yeah, more efficient lighting,
19 stuff like that?
20 MR. KUCZEK: Yeah, other appliances as well.
21 MR. SARGEANT: Thank you.
22 MR. ABRA: When you're doing your testings
23 related to DSM, if I understand your position
24 correctly, what you're looking at is that although
25 you're doing your best to implement DSM, the
647
1 financial constraints that may be present and are
2 ultimately what you look at, is it economic as far as
3 the company is concerned? Am I correct?
4 MR. KUCZEK: For our incentive based programs,
5 that's correct. But we have a number of programs
6 that are customer serviced as well and we don't
7 measure those against that test. They are just basic
8 customer service programs that we offer.
9 MR. ABRA: Okay. As far as the company is
10 concerned, you're looking at the financial impact.
11 Similarly with respect to the customers, as you say,
12 you do offer service and advice to customers?
13 MR. KUCZEK: Correct.
14 MR. ABRA: But the reason for that, again, is
15 financial, is it not? In other words, you can save
16 "X" dollars by implementing this program or that
17 program?
18 MR. KUCZEK: Our programs are driven by
19 supporting a number of initiatives or strategic goals
20 in the company. The prime driver obviously is to
21 support the goal of being a leader in pursuing, I
22 forget the exact terms, but implementing
23 cost-effective energy conservation measures. Another
24 one is to provide customers with good service and the
25 service could be in terms of providing them with
648
1 energy information, low rates, reliability, safety.
2 Another strategic goal that these programs support is
3 being environmentally friendly as well.
4 So I could give you -- you know, like for
5 example, our Power Smart residential loan program
6 that we have right now is not driven by finances at
7 all, it's driven more to do with providing customers
8 with a convenient means of putting in energy
9 conservation measures but it also supports the goal
10 of being a leader in energy conservation measures.
11 MR. ABRA: Is that the only conservation that
12 you follow?
13 MR. KUCZEK: When you say that, what do you
14 mean by that?
15 MR. ABRA: What I'm asking you, sir, I'm
16 sorry, is what DSM issues do you have that are
17 conservation based? Or initiatives, I'm sorry, not
18 issues.
19 MR. KUCZEK: Which DSM initiatives are
20 conservation based?
21 MR. ABRA: Yes.
22 MR. KUCZEK: Okay.
23 MR. ABRA: Or do you have any?
24 MR. KUCZEK: We have a number of programs that
25 are conservation-based. But what I said is they also
649
1 support some other goals. And we have some programs
2 that we don't evaluate against that 6.15 cents
3 economic value or financial value. And we still
4 offer those programs. And they support energy
5 conservation measures as well.
6 MR. ABRA: What are they, Mr. Kuczek?
7 MR. KUCZEK: The Power Smart Residential Loan
8 is one of them. And through that program, we have
9 achieved $41 million of energy conservation measures
10 that have been put in place in Manitoba in the last
11 just under three years. So it was not driven by
12 economics, it was driven -- it's a cost neutral
13 program I guess is what I could say. So inner guide
14 for home assessment program. That's not driven by
15 economics, it's driven more by providing customer
16 service. It also supports other activities in the
17 corporation such as load research because we get more
18 information for our database.
19 MR. ABRA: The savings that you've referred to
20 for each of those programs, those are savings for the
21 customers I assume, are they? If you say they are
22 not economic based, you're able to put a monetary
23 value on them. When you say that it's resulted in
24 savings of whatever the figures were, are those
25 savings for the customer as opposed to the company?
650
1 Is that what you mean?
2 MR. KUCZEK: Savings for the customer as well
3 as Manitoba Hydro.
4 MR. ABRA: Okay.
5 MR. KUCZEK: That program is -- some of the
6 initiatives, most of the initiatives are in gas
7 heated homes. So they are saving on gas as well as
8 electricity. So it's not just electricity.
9 I can give you more programs. There's a Power
10 Smart R2000 program that we have arrived at jointly
11 with the Federal Government. Home Energy workshops
12 is another initiative that we have. We provide those
13 and it's not driven by economics. We provide a
14 number of consumer information pamphlets to people
15 that's not driven by economics. We support the
16 Climate Change Connection. That's not driven by
17 economics.
18 MR. ABRA: The what, sorry?
19 MR. KUCZEK: Climate Change Connection. It's
20 an organization just started up oh approximately two
21 years ago in Manitoba. And we are a partner in that
22 organization. We're not a partner. We help fund it
23 and we're on the Board and we participate in the
24 workshops that they have.
25 MR. ABRA: Okay.
651
1 MR. WOJCZYNSKI: Mr. Abra, can I interject,
2 supplement with some information here perhaps that
3 might be useful?
4 MR. ABRA: Certainly.
5 MR. WOJCZYNSKI: I think the questions we're
6 hearing are asking about our policy objectives and
7 why we're doing the DSM. And Mr. Kuczek has been
8 explaining that. And maybe it would be useful to
9 provide a little bit of additional explanation that
10 when we undertake this whole set of programs as a
11 package of DSM programs, and we undertake that at
12 Manitoba Hydro and let's say we do incentives or
13 whatever and there is a -- and then we can export
14 that energy, in the end, overall, the whole package
15 of programs is more or less neutral to Manitoba
16 Hydro. We're not making a profit off those. So
17 we're undertaking those programs as a package
18 generally because the customer is better off.
19 And so the reason I say that is that we may
20 provide an incentive and then the energy is saved and
21 we export that energy but we also lose the revenue to
22 our domestic customer.
23 So more or less, we do as much DSM so that our
24 rates aren't adversely affected, at least not
25 significantly, but our customers are better off when
652
1 they have the reduction in what they've paid in their
2 bill and they compare that to the subsidy and to what
3 they had to spend. In the end, when they add
4 everything up, they are further ahead.
5 And so that's part of our conservation mandate
6 as a corporation to facilitate that to happen for our
7 customers even though, in the end, we make no extra
8 profit on that. It's roughly neutral for us.
9 So I don't know if that's helping or not but
10 we thought it might give a different dimension to it.
11 MR. ABRA: Okay. Thank you, sir.
12 THE CHAIRMAN: While Mr. Abra is looking up
13 his next issue, there's something I just missed in
14 there because you're saying there's a benefit to the
15 customer because in the end, he uses less energy and
16 it costs him less. But you're saying it has a
17 neutral effect as far as Hydro is concerned. But
18 does that not leave additional energy to export?
19 MR. WOJCZYNSKI: Yes. What I was trying to
20 explain. Let me make up a purely hypothetical
21 example and I'm just making it on the fly so I hope I
22 can make it work right away. I know I can make it
23 work but whether I can do it right now.
24 Let's take our chart, figure 4.5. And again,
25 you need a complicated system evaluation to do it
653
1 properly but we'll ignore that for the moment. Let's
2 say that there is a measure, a DSM measure that would
3 cost five cents for a customer to do in their house,
4 whatever it is. One of the programs Mr. Kuczek
5 talked about, it doesn't matter, whatever it is.
6 MR. MAYER: Changing light-bulbs.
7 MR. WOJCZYNSKI: Let's just say changing
8 light-bulbs and it happen to be five cents a kilowatt
9 hour. But they weren't going to do it for whatever
10 reasons. So we had to help them to do it and that
11 cost -- let me change that. Let's say it's seven
12 cents and they weren't going to do it because they
13 look at their bill and their bill is five cents and
14 they say, well, why would I do this when it's going
15 to cost me seven cents and my bill is five and a half
16 cents so I'm not going to do this. So we make then
17 pay a subsidy of two cents.
18 And then the customer looks and says, ah, it's
19 costing me seven cents, they are giving me a two cent
20 subsidy. That brings my cost to five cents. And my
21 electrical bill is five and a half cents. Oh, I'm
22 further ahead, I'm going to now do it. So they are a
23 little bit further ahead. And then we can then
24 export that energy on the market and get enough money
25 to cover the loss. Because the customer pays us less
654
1 money now. The reduction in the money the customer
2 gives us and the subsidy we had to pay would roughly
3 equal what we get on the export market. So we're
4 roughly equal and the customer is better off.
5 THE CHAIRMAN: At that point. But over time
6 you can benefit from it?
7 MR. WOJCZYNSKI: Well, over time, our
8 calculations are, as Mr. Kuczek indicated, over 30,
9 40 years. So over 30 or 40 years. Beyond that, I
10 don't know what the impacts of that program would be.
11 But we're talking about if you take all the programs
12 together, over the 30 year time frame and add
13 everything up, we roughly are in balance.
14 THE CHAIRMAN: Okay.
15 MR. KUCZEK: If I might just add to that. We
16 do benefit when customers do undertake energy
17 conservation measures but we do also incur a cost by
18 providing these programs.
19 What I said is they are not financially
20 driven. We don't do vigorous economic evaluations of
21 these programs and determine what the savings are and
22 we do know what the costs are and we do know the
23 savings from that and we benefit in the export market
24 from that. But we don't do a detailed calculation to
25 see if we're breaking even or not.
655
1 THE CHAIRMAN: Thank you. I see the light.
2 MR. WOJCZYNSKI: Was it a compact fluorescent
3 light or incandescent?
4 THE CHAIRMAN: It was a more energy efficient.
5 MR. MAYER: While we're still waiting. Mr.
6 Abra referred earlier to the tail block rate and we
7 discussed with another group of you, well Ms. Wray
8 was there, at the last status update hearing as
9 presented by TREE, the issue of inverted rates, we
10 had another discussion about that with the diesel
11 application because there wasn't any home heating
12 issue involved there. But can you give us an update
13 on Hydro's thinking about inverted rates for those
14 who aren't aware of what we are talking about, rates
15 meaning the more energy you use, the more you pay per
16 kilowatt hour for that energy.
17 MR. KUCZEK: I can give you an update on that.
18 At our status update hearing in 2002, TREE and RCM
19 promoted Manitoba Hydro incorporate inverted rates.
20 Right now on the residential market, we have the
21 reverse of that. The first block is at a higher rate
22 and then the next block is at a lower rate.
23 The concept behind that is, as Mr. Mayer said,
24 is that if you had a rate structure that was the
25 reverse of that, you would promote -- the theory is
656
1 you would promote energy conservation because the
2 more people use, the more they would pay. The result
3 of the status update hearing was that P.U.B. ordered
4 and I guess I should add to that. Our position was
5 that we are not opposed to the subject of inverted
6 rates. We think it needs more study and review
7 before we would go down that path. And there's other
8 issues that need to be considered.
9 P.U.B. ordered Manitoba Hydro to undertake
10 those studies and I think we're supposed to have
11 those done by the end of this year, December 31,
12 2004. And our plans are to actually file our study
13 at that point.
14 MS. WRAY: I'll just add to that that in the
15 rate application before the Public Utilities Board
16 for rate increases effective April 1, 2004 and 2005,
17 the rate design proposal inherent in that would see a
18 cumulative increase in the tail block of about 10 per
19 cent. So the idea is to try and move in that
20 direction.
21 MR. KUCZEK: And in fact, by March 1, 2005,
22 we'll just have a flat rate at the residential sector
23 if our rates are approved.
24 MR. MAYER: Don't count on it happening before
25 April 1st let me tell you. We're still going to be
657
1 here.
2 MR. ABRA: The last question --
3 THE CHAIRMAN: Mr. Abra.
4 MR. ABRA: Thank you. The last question I
5 have related to DSM. In your interrogatory response
6 to TREE/RCM/MH/NCN.1 NFAAT question 002(a), you make
7 the comment in your response,
8 "Manitoba Hydro does not measure the
9 DSM activities of other utilities
10 utilizing performance measures.
11 Rather, the corporation bases its
12 assessment on general knowledge of
13 what other utilities are doing in the
14 area of DSM."
15 It goes on to say,
16 "This general knowledge is obtained
17 through contacts with other
18 organizations and industry, other
19 utilities and through various
20 periodicals. Manitoba Hydro also
21 references third party adhoc studies
22 which provide insight into Manitoba
23 Hydro's DSM performance relative to
24 other North American utilities."
25 Now, does that mean that you are not benchmarking
658
1 your DSM to other utilities in North America but you
2 use your own general knowledge in that regard and the
3 contacts that you've discussed in the answer and so
4 on?
5 MR. KUCZEK: Yes. A couple of points. One is
6 first of all we are pursuing what we believe is all
7 the economic market potential opportunities in the
8 market-place. What we do in terms of benchmarking
9 across other utilities is more generic. There's
10 regional differences so one has to be careful in
11 terms of what opportunities exist there and the
12 nature of the markets. An example would be B.C.
13 Hydro's industrial market compared to ours. They can
14 achieve a lot more in B.C. than we can because of the
15 industries there, primarily the pulp and paper
16 industry. So if we measured our industrial efforts
17 against theirs, it would look like we weren't doing a
18 good job and that's really not the case. It's really
19 to do with what the opportunities are.
20 We do look at what other utilities and
21 organizations are doing as indicators to what we're
22 doing. We also look at those organizations to see if
23 there's opportunities that they are pursuing that
24 maybe we should be pursuing. So it's not that we
25 have a blindfold on. We are actually looking at
659
1 what's going on in North America to get some sort of
2 indication of what's happening.
3 MR. ABRA: Is it possible, Mr. Kuczek, to
4 implement some sort of a benchmarking system? Is
5 there one that exists in North America at present or
6 is it possible to implement one?
7 MR. KUCZEK: Well, again, it's a difficult
8 thing to really look at. There's differences within
9 the market-place, the price differentials within
10 different regions. In California, their electricity
11 price is much higher than it is here.
12 In Canada, we have a fairly good indication of
13 what's going on in the market-place. We are on a
14 number of organizations, committees where we talk to
15 and discuss our initiatives with B.C. Hydro, Quebec
16 Hydro and some other organizations. So I'm not sure
17 if I answered your question. Is anybody doing it?
18 Is that the question?
19 MR. ABRA: Well, I asked whether or not is
20 there a benchmarking system that presently exists or
21 can one be implemented?
22 MR. KUCZEK: I don't believe that there is one
23 that exists today. In Canada, there isn't any right
24 now. In the United States, what we are aware of is
25 there's some studies, surveys that people,
660
1 organizations have undertaken to get a general feel
2 of the activity levels that are going on throughout
3 the region. They don't take into account regional
4 differences though.
5 MR. ABRA: Okay. So the present system that
6 you have implemented you think is adequate under the
7 circumstances for determining the DSM?
8 MR. KUCZEK: Well, I always think there's room
9 for improvement and we're open to looking at that.
10 And when I say that, for an example, when Wisconsin
11 is achieving a certain saturation rate of CFLs, it
12 gives me some idea of what we maybe could achieve in
13 Manitoba. So I don't know if I would consider that a
14 benchmark. It provides you an indication of what's
15 achievable in the market and what you could
16 potentially do.
17 MR. MAYER: What's a CFL?
18 MR. KUCZEK: Sorry, it's a compact fluorescent
19 light. I should add that we are talking to B.C.
20 Hydro and Quebec Hydro right now to see if we can
21 come up with some sort of benchmarks because we're
22 all challenged with the same questions at public
23 hearings. So we may be able to come up with
24 something.
25 MR. ABRA: Going briefly to supply-side
661
1 enhancements. In your filing, chapter 4, page 18,
2 that is the original filing of April 2003, you make
3 the comment,
4 "Supply-side enhancement projects are
5 options that incrementally benefit the
6 system by modification or replacement
7 of existing equipment to enhance
8 facility performance or to augment
9 system operation."
10 And then you go on on that same page to say,
11 "By 2002, approximately 140 megawatts
12 of capacity and 732 gigawatt hours of
13 dependable energy has been gained
14 through completed supply-side
15 enhancements to hydroelectric and
16 thermal generating facilities."
17 You go on to say,
18 "The committed SSE projects amounting
19 to 242 megawatts and 865 gigawatt
20 hours are contemplated."
21 Now firstly, I know, Mr. Wojczynski, you testified to
22 this the other day, but supply-side enhancements are
23 basically improvements in the existing system to make
24 it more efficient; am I correct?
25 MR. WOJCZYNSKI: Yes.
662
1 MR. ABRA: Now, you've indicated that
2 committed projects could save you as much as 242
3 megawatts and 865 gigawatt hours. But those
4 projects, have they been embarked on yet?
5 MR. WOJCZYNSKI: It depends what you mean by
6 embarked. But they are committed projects in the
7 sense that we are planning to do them. We've made a
8 corporate decision to do them and we have a
9 commitment to do them. And in each case, we are
10 doing the preparatory work for them.
11 I mentioned Kelsey, we are in the middle of --
12 we have done the engineering for it and we've done
13 the studies required. We've gone out to tender.
14 We've tendered and placed an order for them but we
15 have not yet installed the equipment. The equipment
16 is being manufactured and will be put in place over
17 time in the next four years.
18 Pointe Du Bois, we are in the middle of a
19 major study that's been going on for about two years.
20 Once we acquired Winnipeg Hydro, we then immediately
21 undertook a major study as to the facility existing
22 capability, its shape, what work has to be done on
23 it. Winnipeg Hydro had done some work but we did a
24 comprehensive assessment of what needs to be done to
25 meet new environmental standards, new safety
663
1 standards. And we're now -- once we've got these
2 hearings over and the licensing process finished,
3 we'll go back and assess. There's various options.
4 We can see exactly which option we're going to
5 pursue.
6 Similar with the others ones. Bipole-III line
7 we have initiated the studies and the consultations
8 required for that but we don't have a licence yet.
9 We haven't got to that phase of the project yet. So
10 that's what we mean.
11 MR. ABRA: Now as you've indicated, that
12 figure of 242 megawatts is based, as you've said, on
13 Kelsey, Pointe Du Bois, Winnipeg River plants,
14 Northern AC enhancements, Bipole-III for a total of
15 242. Now you've also indicated that a Pointe Du Bois
16 refurbishment might yield up to 53 megawatts. Slave
17 Falls might yield up to 12. Brandon Repowering might
18 result up to 120 megawatts and Selkirk Capacity
19 Enhancement up to 10. So if you add all of those
20 three together, they come to almost the 200 megawatts
21 that we're talking as far as Wuskwatim.
22 Have those been taken into consideration with
23 respect to the decision to proceed with Wuskwatim in
24 200 megawatts?
25 MR. WOJCZYNSKI: They have been taken into
664
1 consideration, yes.
2 MR. ABRA: Go ahead?
3 MR. WOJCZYNSKI: And I should perhaps clarify
4 when I say taken into consideration. Our resource
5 plan that was used for the evaluations assumed the
6 total completed and committed already. And it did
7 not include our system evaluations into the future.
8 It didn't include the additional capacity and energy
9 from Pointe, Slave, Brandon and Selkirk. But we did
10 look at sensitivities to our studies which would
11 suggest to us what the impact of these would be if
12 they would all happen to proceed.
13 MR. ABRA: What was the result of that study?
14 MR. WOJCZYNSKI: The result of that study was
15 that there would be an IRR impact of less than 0.3.
16 MR. ABRA: Okay.
17 MR. WOJCZYNSKI: And I refer you to page 22
18 and page 21 of the -- not 21, 22 and 23 of the
19 presentation on Monday and the same information was
20 provided in the interrogatory process in the original
21 submission. And what I'm referring to at this point
22 is the minus 300 megawatt interconnection capability
23 adjustment which is a reasonable proxy for a whole
24 bunch of possibilities amongst which would be the 185
25 megawatts of additional SSC generation that might
665
1 possibly be economic and feasible down the road.
2 MR. ABRA: Assuming for a moment that you were
3 to take the financial resources that you're planning
4 on implementing with respect to the development at
5 Wuskwatim and took that same amount and put it into
6 potential SSE projects. What would the result be as
7 far as similar capacity and energy results are
8 concerned? Is it feasible or is it not?
9 MR. ADAMS: As I said on Monday, we don't see
10 this as an either/or. If these things are feasible,
11 we'll do them. These things, we don't know if they
12 are feasible. It's impossible to do a financial
13 evaluation at this point.
14 MR. ABRA: As to how much more can be saved
15 through SSE?
16 MR. ADAMS: No, whether or not it's economic
17 to save it through SSE. The table identifies up to
18 53 megawatts with respect to Pointe.
19 MR. ABRA: Pointe Du Bois?
20 MR. ADAMS: Pointe Du Bois, yes. Pointe for
21 shorthand. That doesn't mean that -- that doesn't
22 necessarily mean that it's economic. It just means
23 that it's physically possible. And we haven't done
24 the evaluation yet.
25 MR. ABRA: You haven't done an evaluation in
666
1 that regard at all?
2 MR. ADAMS: We're in the process of doing it.
3 And if it's economic, we will proceed with it
4 whether or not we proceed with Wuskwatim.
5 MR. ABRA: Okay.
6 MR. MAYER: Following on from that, you've
7 told us why you are not doing the Notigi in place of
8 Wuskwatim but it's been on my mind for some time.
9 You show on this very nice little map the possible
10 extension of Kelsey to 240 megawatts. Again, at
11 Kelsey, it looks to me like, well I know because I've
12 seen it. You've already got a dam. I actually
13 stayed there one night. And you've got I would
14 assume most of the infrastructure in place. Why has
15 that not been considered? It doesn't appear on any
16 of your future developments really quickly yet it
17 would always strike me that you back that water up a
18 fair bit already, because there's no more rapids
19 underneath the railway bridge. You are above Split
20 Lake. And so I am assuming you wouldn't do any more
21 particular damage there. So why is it that that
22 wasn't considered as one of the possible alternatives
23 to Wuskwatim?
24 MR. WOJCZYNSKI: We have -- that same question
25 comes up inside our company about every six months
667
1 over the last ten years or 20 years. And that's
2 because it presents itself immediately as a very
3 obvious choice that should be considered. And we
4 have considered it again and again, although not in
5 the last couple of years because we've gone through
6 it so often.
7 If you wanted to do a major expansion there,
8 you'd need a new powerhouse and it would be very
9 expensive because you could get much more -- you
10 could get another 100, 200 megawatts capacity but you
11 wouldn't get a lot of additional dependable energy
12 because you've already got the existing seven units
13 who are taking the majority. Like they are running
14 essentially flat out. So if you expand to put a
15 whole bunch of more units in another powerhouse, then
16 they would only be able to operate either in a high
17 flow year, near a flood year, or they would be used
18 for moving energy from the off peak into the on peak
19 but they wouldn't produce a whole bunch of new
20 energy. You have to build a whole new powerhouse,
21 you have to build a coffer-dam. So it's a lot of
22 expense.
23 So what we have found over time, the more
24 logical thing to consider is that instead, let's take
25 the existing powerhouse and put in more efficient
668
1 units. And we've gone out to suppliers and they've
2 come back with some very new technology and
3 approaches and that's where we're getting the 77
4 megawatts from. That would cost around in the order
5 of $100 million and actually that would be over the
6 next eight years. I said four years, it's more like
7 eight years. And we're not looking at increasing the
8 head at Kelsey either, all we're doing is talking
9 about taking the flow that's there and passing it
10 through more turbines.
11 MR. MAYER: Seventy-seven megawatts?
12 MR. WOJCZYNSKI: Okay. Sorry, well, let me
13 explain.
14 MR. MAYER: I'm looking at your chart.
15 MR. WOJCZYNSKI: Yes, I know you are and I am
16 in effect providing you an update to that and let me
17 explain. David, could you turn to CEC round one
18 22(a)? And we turn to Kelsey under committed SSE
19 projects. And you are quite correct in pointing out
20 that I must have misread the number and I was going
21 to come to that. So you beat me to the punch.
22 When we first were looking at Kelsey, we had
23 some preliminary engineering studies which suggested
24 24 megawatts was the economic amount that we could
25 have obtained by improving the efficiency at Kelsey.
669
1 We went out to the suppliers and told them what we
2 wanted to do and asked them to bid on that and to
3 come back with any suggestions. And they came back
4 and said, well, we do have some new technologies and
5 here is some possibilities and we evaluated those and
6 determined that we actually could do better than the
7 24 megawatts. And that's the 77 megawatts that you
8 see on this update that was provided in the round
9 one.
10 So the submission originally said 24
11 megawatts. The update indicates 77 megawatts and
12 that is built into our plans. And I would like to
13 add that we had provided also an update to the
14 Wuskwatim economics when I mentioned the other day we
15 did a whole bunch of updates. And I didn't want to
16 get into all the details but one of the small details
17 was that in our new resource plan where we calculated
18 Wuskwatim with this larger Kelsey edition was built
19 into that.
20 So our updated Wuskwatim economic analysis
21 that gave us a 10.0 per cent IRR already assumed that
22 this larger Kelsey would be done.
23 MR. MAYER: Thank you, sir.
24 MR. ABRA: Moving on briefly then to imports,
25 again from your original filing chapter 4, page 26,
670
1 lines 11 through 22. I won't read them all but you
2 just make the comment with respect to imports that
3 you currently have approximately 700 to 1,200
4 megawatts of firm import capability available from
5 the United States, Saskatchewan and Ontario depending
6 on ambient temperature and the status of critical
7 transmission lines. And then you go on to say,
8 "Any Manitoba Hydro project to expand
9 interconnections could only proceed
10 with simultaneous development of
11 transmission on the other side of the
12 border. It is difficult to obtain a
13 willing counterparty to develop such
14 transmission."
15 Now, interconnections, as you explained
16 yesterday, are basically transmission lines joining
17 each other along with the necessary stations and so
18 on. Are you presently in discussion with other cross
19 border energy providers, not for the purposes of
20 export obviously but for the purposes of import?
21 MR. MAZUR: No, we're not at the moment other
22 than looking at what the regional planning process is
23 looking at. At this point, none of them are into
24 Manitoba from the U.S. We are looking at the
25 potential line into Ontario but that's export not
671
1 import.
2 MR. ABRA: When you say it's export not
3 import, you mean for the purposes of export?
4 MR. MAZUR: That's correct. That's right.
5 MR. ABRA: I assume you use the same lines
6 whether to export or import, don't you?
7 MR. MAZUR: There will be some import
8 capability.
9 MR. ABRA: If you build a line, you can use it
10 for either export or import?
11 MR. MAZUR: Not necessarily. It depends on
12 the plan.
13 MR. ABRA: It depends on what, excuse me?
14 MR. MAZUR: It depends on the plans that we
15 are looking at. And some of the plans which are in
16 an interrogatory here for Ontario involve a DC line
17 from the northern system. And that would have very
18 minimal, if any, import for example. Because we
19 couldn't run import into the northern system with
20 Kelsey -- I'm sorry, limestone, kettle and long
21 spruce. There's just no capability and there's a
22 danger that we will damage the existing plant that we
23 import into that system.
24 MR. ABRA: I see. I mean obviously you are
25 trying to increase your export. And if you're saying
672
1 that it may be difficult to use the same line for
2 both import and export, then is it fair to say that
3 the expansion of import beyond what you presently do
4 is really not an alternative?
5 MR. MAZUR: I don't think it's fair to say
6 that. I guess a lot of what we do will depend on our
7 resource plan as far as the import needs go. We just
8 constructed a --
9 MR. ABRA: But for -- sorry, I didn't mean to
10 cut you off. Go ahead.
11 MR. MAZUR: We just finished constructing a
12 line out of Glenboro into the North Dakota area. And
13 that primarily was to improve our import capability.
14 And although it does provide an equal amount of
15 export, the driving force was import in order to
16 bring some of our contracts that we have existing
17 into Manitoba.
18 MR. ABRA: But how much priority are you
19 putting on expanding your import beyond the present
20 700 to 1,200 megawatts that you're presently
21 importing according to your statistics?
22 MR. MAZUR: Again, I think that's driven more
23 by our resource plan and our energy needs rather than
24 transmission priorities.
25 MR. ADAMS: Maybe I can best speak to that
673
1 one. In continuous contact with all of the major
2 electricity suppliers in the northern tier of the
3 U.S., we have members on various committees in MAPP,
4 that's M-A-P-P, Mid-Continent Area Power Pool. We
5 have people on various organizations in MISO,
6 M-I-S-O, which is the Midwest Independent System
7 Operators. We use the acronyms so often you forget
8 what they stand for.
9 And some of these are very formal things like
10 Mr. Mazur was talking about which is a formal
11 regional planning process. And right up to the other
12 extreme where we continue with our customer contact
13 type of initiatives and sort of say would you be
14 interested if. And that's continuous and it's
15 wide-ranging.
16 The reality from a generation planning
17 perspective is it really doesn't make an awful lot of
18 sense to plan to import on a continuing basis from a
19 high cost area into Manitoba which is a low cost
20 area. It does make sense for us to have the ability
21 to import on certain occasions, like this winter.
22 MR. ABRA: When you have to?
23 MR. ADAMS: When you have to, yes. Or when
24 the price situation is such that it makes sense to.
25 But as a -- it's very very rare in our experience
674
1 that we will ever pursue a new interconnection for
2 import purposes except for, as Mr. Mazur says, every
3 other interconnection we've ever done has been on the
4 basis of either mutual sharing or is mostly driven by
5 export opportunities.
6 MR. ABRA: Okay. Mr. Chairman, that completes
7 all of my questions with respect to alternatives
8 generally. We've covered all of them. If the Panel
9 has any further questions, please indicate so
10 otherwise I'll move along to export demand.
11 THE CHAIRMAN: Mr. Abra, I think that from
12 I've seen, there was no shyness in jumping every now
13 and then. So I gather, unless I'm being pushed
14 around here, that there are no further questions from
15 the Panel here.
16 MR. ABRA: Thank you, Mr. Chairman. I'd like
17 to move on to export demand then. And really my
18 first question picks up on what Mr. Adams was just
19 speaking to. The membership in Midwest Independent
20 System Operators. I believe that's what MISO stands
21 for, is it not?
22 MR. ADAMS: Yes, it is.
23 MR. ABRA: Now, you joined in I believe in
24 1996.
25 MR. ADAMS: No, we joined MAPP.
675
1 MR. ABRA: What is MAPP?
2 MR. CORMIE: MAPP is the acronym for the
3 Mid-Continent Area Power Pool.
4 MR. ABRA: Okay.
5 MR. CORMIE: And it's a regional organization
6 of utilities and marketers. There were three
7 organizations, a regional reliability organization, a
8 transmission organization and a power energy market.
9 And we joined all three in November of 1996.
10 MR. ABRA: So you joined MAPP in 1996?
11 MR. CORMIE: Yes, we did.
12 MR. ABRA: And did you also join MISO in 1996?
13 MR. CORMIE: No, we became a member of MISO in
14 the fall of 2001.
15 MR. ABRA: In 2001?
16 MR. CORMIE: 2001, yes.
17 MR. ABRA: Now, is it fair to say that it's
18 your membership in those two organizations that has
19 increased the export or the potential for export and
20 so forth? If you can give me a brief synopsis, Mr.
21 Cormie or whichever of you is the most appropriate,
22 on sort of how the export market has developed so
23 significantly over the last number of years?
24 MR. CORMIE: Prior to 1996, Manitoba Hydro
25 sold electricity to those utilities to whom it was
676
1 directly interconnected. We were connected into the
2 United States with five utilities, Northern States
3 Power, Ottertail Power, Minnkota Power, as in
4 Minnesota, North Dakota, Minnkota. United Power
5 Association and Minnesota Power as we were connected
6 to Saskatchewan Power and to Ontario Hydro.
7 And so trade over those interconnections was
8 inter-utility trade. Those utilities owned the
9 transmission lines. They were vertically integrated
10 and they owned the generators. The only transmission
11 in trade was between the companies. And the
12 companies held all the rights to the transmission
13 lines. And we had no choice, except when we're using
14 those transmission lines, to trade with those
15 companies. We couldn't go beyond -- we couldn't use
16 Northern States Powers transmission lines to reach
17 deeper into the United States market.
18 MR. ABRA: I see.
19 MR. CORMIE: In 1996, as a result of changes
20 in restructuring of the United States electricity
21 market, the FERC ordered that all transmission that
22 wasn't committed under existing contracts should be
23 made available to anybody on a non-discriminatory
24 basis. That means that people who were willing to
25 pay the tariff rates could use the transmission lines
677
1 as a public highway. And as long as you paid the
2 tariff, then you could move power across the United
3 States if you could find space on the transmission
4 lines.
5 So Manitoba Hydro joined the Mid-Continent
6 Area Power Pool. We signed up under their tariff and
7 we were allowed then to sell our electricity to any
8 customer in the United States to whom we could reach,
9 to whom the transmission system could give us access
10 to those markets.
11 So Northern States Power no longer had -- we
12 were no longer a locked-in supplier to Northern
13 States Power. Northern States Power would offer its
14 transmission services up to anybody to use wherever
15 they chose to sell their electricity. So we gained
16 market access and we could then reach farther into
17 the region and sell to whoever was willing to pay the
18 most.
19 And Northern States Power, as an example, or
20 Minnesota Power could no longer require Manitoba
21 Hydro to sell them -- to use that transmission just
22 for their own purchases. They could not discriminate
23 against Manitoba Hydro's use of that transmission
24 line. We would just pay the tariff.
25 So in 1996 we gained, you know, access to the
678
1 open market. And through competitive pricing, we
2 were able to achieve market prices for our
3 electricity as opposed to the prices that the
4 utilities were willing to pay prior to that time.
5 MR. ABRA: And then the market has continued
6 to grow?
7 MR. CORMIE: Well, over time, increasing
8 demand for electricity, lack of new generation
9 resources being built in the region, the higher cost
10 for natural gas and competition have resulted in
11 Manitoba Hydro achieving higher prices for its
12 electricity than it had in the past.
13 MR. MAYER: This sounds like a really strange
14 comment. That's the second time I've heard it and it
15 makes me smile. The second time you said that as a
16 result of more competition in the market, your
17 ability to sell at a higher price was created.
18 That's what I heard, isn't it?
19 MR. CORMIE: Well, that's right.
20 MR. MAYER: Competition increased the prices.
21 Love it.
22 MR. CORMIE: Well, previously Manitoba Hydro
23 had to sell its surplus power to a customer. We had
24 to be a price-taker. Whatever the customer wanted to
25 pay, that was the value of the electricity. In a
679
1 shortage market, prices go up. Manitoba Hydro is not
2 a price taker anymore, it's a market price taker and
3 we get to now choose to whom we sell it to. And so
4 competition allowed us to achieve market prices for
5 the electricity.
6 MR. WOJCZYNSKI: A generic addition to that is
7 that those analysts who fully subscribe to the
8 competition is best in a commodity market and that
9 that applies to electricity markets. Even those who
10 fully subscribe to that and 100 per cent advocate for
11 that do also say though that if you have a low-priced
12 region and a high-priced region, that the long-term
13 trend will for them to become closer together.
14 The MAPP region has historically tended to be
15 a low-priced region compared to some of the other
16 jurisdictions in North America. I'm thinking more of
17 the States here. So even the deregulation advocate
18 would say, well yeah, MAPP would probably see
19 increase in prices.
20 In addition to what Mr. Cormie said, a second
21 layer is that the expectation be from a theoretical
22 economics point of view is that you will see the MAPP
23 prices increase while they will decrease in other
24 jurisdictions because you have transactions between
25 them.
680
1 MR. MAYER: Some of what I commented was
2 somewhat tongue-in-cheek. But interestingly enough,
3 I attended one of these conferences and they had a
4 really interesting theory on privatization is that
5 immediately after privatization, as appeared to have
6 happened in California, the prices go sky high. And
7 if it fell down to about twice what it was before
8 privatization, they considered it a success. I
9 always had a little trouble understanding that
10 concept. That doesn't require an answer.
11 MR. CORMIE: So in summary, we are benefitting
12 from competition among buyers. And generally,
13 Manitoba Hydro is a seller and so we're achieving a
14 better price from the competition amongst the buyers.
15 MR. ABRA: How do you go about obtaining more
16 customers then? Is that by marketing and so on?
17 MR. CORMIE: We achieve that through
18 marketing, through going to regional conferences,
19 making contacts, knowing who all the utilities and
20 municipal agencies are within the region to which our
21 transmission can reach. Yes.
22 MR. ABRA: Okay. According to one of the
23 responses that you gave to an information request,
24 your export customers grew from zero in 1995/1996,
25 which I guess is when you say you entered MISO, and
681
1 it grew from 0 to 48 by 2001/2002. And then you
2 dropped to 37 in 2002/2003. What was the reason for
3 that?
4 MR. CORMIE: In 1996, we originally had the
5 seven customers, the five direct interconnects in the
6 United States and the two Canadian. So we at seven
7 and it grew from there?
8 MR. ABRA: Yes, to 48.
9 MR. CORMIE: Yes. Several of those in that 48
10 were not utilities, they were power marketers, energy
11 traders who had no end-use load obligations. They
12 were buying and selling electricity, helping to
13 create the market. In following the Enron collapse
14 in 2001, a lot of the energy marketing companies
15 withdrew from the market. The risks were too great.
16 Companies like Enron, Acola, Reliant, many of the
17 companies that were just in there on a speculative
18 basis withdrew and we're now back to trading with
19 generally companies that have end-use load again.
20 MR. ABRA: They'd have to have a real use for
21 the load as opposed to just speculation?
22 MR. CORMIE: That's right.
23 MR. ABRA: That's the reason it's dropped to
24 37?
25 MR. CORMIE: That would be some of the
682
1 reasons, yes.
2 MR. ABRA: Okay. Are there any other reasons,
3 Mr. Cormie, that you could think of other than the
4 fact that obviously you were affected by Enron along
5 with everybody else?
6 MR. CORMIE: There would have been some
7 amalgamation between companies.
8 MR. ABRA: Customer companies and so on?
9 MR. CORMIE: Companies merged, they trade
10 through a single organization. And so instead of
11 having two companies as a customer, you end up only
12 having one.
13 MR. ABRA: So is that present number of
14 approximately 37 in 2002/2003 expected to remain
15 constant or are you hoping to increase it again?
16 MR. CORMIE: One of the benefits of MISO is an
17 expectation that over time, the transmission system
18 will expand and we will be able to reach farther out
19 into the market as transmission barriers and tariff
20 barriers are diminished and we can reach out farther.
21 And we hope that over time, we can reach deeper into
22 the United States to more lucrative markets and grow
23 our customer base.
24 MR. ABRA: Okay. Now, you do have reserve
25 requirements related to domestic loads and export
683
1 loads or do you?
2 MR. CORMIE: Yes, we do.
3 MR. ABRA: Firstly, what is a reserve
4 requirement?
5 MR. CORMIE: There are two types of reserve
6 requirements. One is a planning reserve requirement
7 where Manitoba Hydro needs to plan for its load plus
8 a specified reserve margin to cover off
9 contingencies. Manitoba Hydro has a self-imposed 12
10 per cent capacity reserve requirement.
11 So for a particular year in the future, we
12 estimated what our load is. And then we say we need
13 to carry an extra 12 per cent of generating capacity
14 to serve that load, to cover off uncertainties such
15 as unexpected load growth, outages of units, weather,
16 extreme weather variation, those kind of
17 contingencies that can happen.
18 So those are the planning reserves. We plan
19 for those and ensure that that gives us a safety
20 margin.
21 MR. ABRA: You keep that amount in reserve?
22 MR. CORMIE: Right.
23 MR. ABRA: Okay.
24 MR. CORMIE: The second type of reserves are
25 operating reserves, they are not planning reserves.
684
1 And operating reserves are those reserves that we
2 have available at any moment in time to protect
3 against the loss of generating equipment. And the
4 criteria is that we protect against the largest
5 single contingency that could occur.
6 You can imagine that if each utility in the
7 region was carrying reserves for their worst
8 nightmare, that there would be a lot of reserves
9 being carried in the region. So we belong to a
10 regional generation reserve sharing pool where all
11 the utilities carry a share of the largest single
12 contingency. And as a result, there's much less
13 reserves carried in the region. And the largest
14 contingency that the MAPP region is carrying right
15 now is 1,250 megawatts. Manitoba Hydro's share of
16 that is approximately 200 megawatts.
17 So if that situation would arise where there's
18 a 1,250 megawatt loss of generation or transmission
19 capability, each member of the pool or the
20 cooperative throws in their share of the reserves in
21 order to meet that unexpected event. And those
22 operating reserves are available at all times.
23 So at this moment as we're meeting the load at
24 this present time, there are 1,250 megawatts of
25 generators that can be immediately started or can be
685
1 started within 15 minutes to ensure that the load can
2 continue to be served if there is an outage in the
3 region.
4 MR. ABRA: When you're doing your planning for
5 both export and domestic markets, do you do your best
6 to ensure that the domestic market is protected and
7 that there's ample energy, capacity and energy for
8 the domestic market before you start dealing with the
9 issue of the export market?
10 MR. CORMIE: From a planning perspective, we
11 treat our export obligations exactly the same as we
12 treat our firm load obligations. So we put in place,
13 we maintain the same standards of reserves and
14 reliability for the firm exports as we do for our
15 domestic load.
16 When we get into the operating horizon though
17 within the contracts, we have the right to curtail
18 our export sales before we are -- before we curtail
19 deliveries to our domestic customers. So there's a
20 stacking priority that gives priority to domestic
21 customers.
22 MR. ABRA: The reason I ask the question to
23 come done to the basics is that what can you say to
24 satisfy us that the domestic market is going to be
25 protected when obviously you are attempting to get
686
1 into the export market to a significant degree?
2 MR. CORMIE: Because each one of our export
3 contracts has the provision that we can use that
4 capacity and energy to serve our load first prior to
5 serving the export obligation. We just wanted to
6 make the point that we only enter into long-term firm
7 sales if we have the resources available on a
8 dependable basis. We don't sell firm power unless we
9 have the firm capability or the dependable capability
10 on the system.
11 MR. ABRA: And I am sorry, did I understand
12 you to say then from your answer just before that all
13 of your export contracts do have a provision ensuring
14 that the domestic market takes priority if in fact
15 you become pressed?
16 MR. CORMIE: Absolutely, yes.
17 MR. ABRA: Okay.
18 MR. CORMIE: So we are able to curtail
19 deliveries to the extent necessary to continue to
20 serve the Manitoba load as a first priority. And
21 that's the same treatment that our customers -- when
22 we are importing, we import from them and they will
23 curtail their deliveries to us in order to serve
24 their own loads first.
25 MR. ABRA: Now, one of the issues of course
687
1 that the Commission has to be satisfied in this whole
2 issue, I mean you've made it very clear when you come
3 to the Commission that you're building Wuskwatim in
4 anticipation of the export market?
5 MR. CORMIE: Yes.
6 MR. ABRA: And not only maintenance but your
7 hope to increase the export market and so on. Are
8 there risks inherent in the building of Wuskwatim
9 that your export sales are not going to reach the
10 level that you are anticipating?
11 MR. CORMIE: Is there a risk that we won't be
12 able to sell the output of Wuskwatim on a firm basis
13 as we are intending?
14 MR. ABRA: Yes. You phrased it better than I
15 have.
16 MR. CORMIE: We are actively pursuing sales
17 opportunities today with several companies in the
18 United States and on the premise that we will have
19 dependable energy to sell as a result of the
20 construction of Wuskwatim so that our customers who
21 are keenly interested in purchasing power from
22 Manitoba Hydro. And there are several of them who
23 are pursuing this purchase as an alternative to
24 building their own new generation facilities.
25 So from the marketing perspective, we are
688
1 going along a parallel path of marketing and pursuing
2 these sales, not waiting for the final approval of
3 the project but contingent on the approval of the
4 project.
5 MR. ABRA: So in essence, do I understand you
6 to be saying, I suppose there's a risk in any
7 marketing but you think it's a low one in view of the
8 negotiations and discussions you've had so far in the
9 potential export market?
10 MR. CORMIE: I believe the risk is low, yes.
11 MR. ABRA: You said as part of your previous
12 answer, Mr. Cormie, that some of the companies or
13 States that you've had discussions with have
14 indicated an interest, shall we say, in purchasing
15 power from Manitoba Hydro if it becomes available
16 through the development of Wuskwatim to the point
17 that they may not be proceeding with their own kind
18 of generation, development or whatever.
19 What sort of generation would that generally
20 be, do you have any idea? Is it coal or natural gas
21 or what or do you know?
22 MR. CORMIE: It's both. One customer is
23 considering -- depending whether they want base load
24 energy or whether they wanted peaking power, they are
25 looking as a replacement for an alternative for a
689
1 coal fire plant and also looking for as a replacement
2 for a simple cycle combustion turbine.
3 And I think our assumptions with regard to
4 pricing are consistent with what our customers are
5 telling us their alternatives are. And so I don't
6 see a disconnect between our economic plans and
7 really what our customers are telling us they need.
8 MR. ABRA: Okay.
9 THE CHAIRMAN: Mr. Cormie, while Mr. Abra is
10 looking up some information, when you are talking
11 about firm contract for exports, these contracts are
12 for a given signed period of what duration?
13 MR. CORMIE: Manitoba Hydro has firm power
14 contracts in place that are as short as five years
15 and as long as 10 to 15 to 20 years.
16 THE CHAIRMAN: And you're looking for a firm
17 contract in regards to the availability of the firm
18 Wuskwatim for what period?
19 MR. CORMIE: We are negotiating longer term
20 contracts and we haven't come to an agreement on the
21 term yet.
22 THE CHAIRMAN: If we get let's say a contract
23 with some utility in the States for ten years and
24 before the end of that contract there is demand,
25 domestic demand that we can not meet, we would then
690
1 import for that balance that we need or could we get
2 out of that contract or would we have to pay
3 penalties to do so and stuff of that nature or is
4 that such a small risk?
5 MR. CORMIE: Well, the contracts are not
6 recallable for those reasons. We would see higher
7 domestic load, recognize that given our firm
8 obligations in the export market that Manitoba would
9 now need to build additional resources, it would be
10 as a result of the change in the load forecast. But
11 it would be our plan to cancel a contract once
12 committed.
13 THE CHAIRMAN: You mentioned that since 1996,
14 like the highway is open to export.
15 MR. CORMIE: Yes.
16 THE CHAIRMAN: And you pay a tariff. What is
17 that tariff based on and how does that impact Hydro?
18 MR. CORMIE: The tariffs are generally
19 structured to recover the cost of the capital and
20 operating cost of the transmission system and it can
21 be paid in various ways.
22 THE CHAIRMAN: Is it a flat rate?
23 MR. CORMIE: Sometimes it's based on the
24 number of megawatt miles. If you ship 100 megawatts
25 100 miles, you pay a different rate than if you ship
691
1 100 megawatts for ten miles. Sometimes it's just a
2 flat rate. And sometimes the cost is paid by the
3 customer and there is no charge for moving energy
4 because the cost of the transmission service has
5 already been paid for by the end-use customer. So
6 the MISO tariff is different than the MAPP tariff.
7 THE CHAIRMAN: It varies with the utilities?
8 MR. CORMIE: But they are all cost recovery
9 based tariffs.
10 MR. ADAMS: Mr. Lecuyer, I'd like to clarify
11 this business about what happens if the customer
12 demand is higher than forecast. The customer in
13 Manitoba is in exactly the same position -- if we can
14 back up a bit. If we advance Wuskwatim ten years and
15 sign a deal that exactly matches the output of
16 Wuskwatim, the customer is in exactly the same
17 position in that ten year period as if we had not
18 advanced Wuskwatim. So we've still got what we call
19 the load forecast error risks are going to be borne
20 by the customer one way or the other.
21 To the extent that we don't match the sale
22 exactly with the Wuskwatim output, Manitoba customers
23 are in a better position than they would be had we
24 not advanced it.
25 THE CHAIRMAN: You said they would be in the
692
1 same position. But if you actually had advanced it,
2 the power is there but it's part of a firm sales
3 contract. And all of a sudden, there is a major
4 industry, for instance, that has high demand for
5 energy that comes on the scene. How do you serve it?
6 That's what basically I was asking.
7 MR. ADAMS: The same as we'd serve if we
8 hadn't advanced Wuskwatim. We'd have to either go to
9 market or put in place a shortly-time source of
10 supply such as more wind turbines or gas turbine or
11 something of that nature.
12 The other point that I would like to make, and
13 I think Mr. Cormie is being a little modest here, in
14 all the time that we've been in the export market,
15 I'm not aware that we have ever failed to sell energy
16 and had to spill it. We've never been in a position
17 where we haven't been able to sell the energy. We've
18 been in a position where we couldn't get it to market
19 because of transmission circumstances.
20 So the key question from our perspective is
21 not can you sell it, I'm absolutely certain we can
22 sell it, but at what price can you sell it for. And
23 that is where we spend more of our time and effort.
24 THE CHAIRMAN: Thank you. Mr. Abra.
25 MR. ABRA: Thank you, Mr. Chairman. Just
693
1 picking up on something arising from Mr. Lecuyer's
2 question. You made the decision not to build
3 Conawapa when the Ontario contract fell through a
4 number of years ago, or at least that was one of the
5 rationales for it. That would have been 1,300
6 megawatts approximately. And I assume that based on
7 that decision, you didn't think you could sell 1,300
8 megawatts by way of export at that time in any event.
9 And Wuskwatim is of course 200 megawatts.
10 Now, is there a threshold between the two
11 numbers of 200 megawatts and 1,300 as to what you
12 feel confident you could sell and yet that you don't
13 feel confident you can sell? Do you understand the
14 question?
15 MR. ADAMS: I understand the question. And
16 the answer is yes and no or it depends.
17 MR. ABRA: That's pretty safe.
18 MR. ADAMS: It's largely a function of time.
19 The Manitoba load continues to increase pretty much
20 at one and a half per cent as Mr. Wojczynski showed
21 on the chart. Or another way of putting that is two
22 to 300 gigawatt hours a year. So over a ten year
23 period, that means there's 2 to 3,000 gigawatt hours
24 a year that we're currently exporting that is no
25 longer able to export. It's being used in Manitoba.
694
1 And so at that point after ten years, we feel
2 that we would have absolutely no trouble selling a
3 project that came in and produced 3,000 gigawatt
4 hours a year because all it does it put us where we
5 are today. We actually think we could sell more than
6 what we've got available today.
7 So bringing in a station that produce 5,000
8 gigawatt hours a year, using the existing
9 transmission in a period roughly eight to 12 years
10 down the road we think is well within our capability.
11 If you were to bring in Conawapa today or even
12 ten years down the road, all of a sudden you're
13 flooding -- you're saturating the transmission
14 system. There will be energy bottled up inside the
15 province. You will force the prices down in the area
16 that we're marketing to. And so at that point, we
17 would say you don't build Conawapa unless you've got
18 another transmission line.
19 So today, I have no concern whatsoever about a
20 200 megawatt threshold coming in in 2010. I
21 personally have no concern -- I should rephrase it.
22 It's not that I have concerns. I'm satisfied that we
23 can manage the impacts profitably of bringing in a
24 620 megawatt plant in around 2012. I wouldn't feel
25 comfortable in bringing in 1,000 megawatts in 2012
695
1 without additional transmission capacity or access to
2 a different market.
3 MR. ABRA: To be able to send it elsewhere?
4 MR. ADAMS: Yes.
5 THE CHAIRMAN: We will adjourn I guess at this
6 time and reconvene at seven o'clock. So we will
7 reconvene at seven o'clock to complete this portion
8 of the questioning on the need by the panel and our
9 counsel. And then if there are members from the
10 public participating here who wish to put questions
11 to the Hydro panel here, then there will be
12 opportunity to do so, or presentation if that's the
13 only time they can be here. Please advise Mr. Grewar
14 to that effect before you leave for the period of
15 adjournment.
16 MR. ABRA: Mr. Chair, just before we break. I
17 wonder if I could just ask the panel a question.
18 I do have some questions related to the
19 turbines that are intended to be used in the
20 Wuskwatim project because they do have some
21 environmental impact aspects to them. I'm wondering
22 whether or not they should be directed to this panel
23 or if some of you are the ones who have the expertise
24 in the turbines, or whether it should be saved for
25 the EIS.
696
1 Similarly with respect to the design of the
2 pylons. We have a couple of questions that our
3 engineers are interested in. And I'm wondering
4 whether this panel is the one that's appropriate or
5 whether it's the EIS panel.
6 MR. WOJCZYNSKI: The members on this panel
7 could answer that question but it might just be as
8 easy to leave it to the EIS panel there because the
9 same people who would answer that set of questions
10 would be there for that panel as well. So it is your
11 choice.
12 MR. ABRA: Okay.
13 THE CHAIRMAN: So we do have some questions
14 from the panel here to start the evening. And then
15 as I said, some members participating here who wish
16 to either make the presentation here because they
17 will not be available to do so at the time or if
18 there are members who wish to, if there is time
19 available and there are members from the public who
20 wish to pose questions to the Hydro panel or the NCN.
21 MR. ABRA: I still have a couple of areas to
22 cover, Mr. Chairman, although I don't expect them to
23 be very lengthy.
24 THE CHAIRMAN: That's right. So we'll start
25 where we left off and then there will be some time
697
1 after that.
2
3
4 (PROCEEDINGS RECESSED AT 5:10 P.M.
5 AND RECONVENED AT 7:00 P.M.)
6
7 THE CHAIRMAN: Ladies and gentlemen, I
8 see we are all sitting down. Hopefully, we all
9 had a good dinner and we are ready to carry on.
10 We said before at 5:00 o'clock that we
11 would just carry on for a while with Mr. Abra's
12 questioning. Are you ready to go?
13 MR. ABRA: Yes, thank you,
14 Mr. Chairman.
15 We left off on the issue of exports
16 generally and the export demand. I would like to
17 deal briefly with the issue of pricing for the
18 purposes of export.
19 What is the general approach you use
20 for the forecasting of export prices?
21 MR. WOJCZYNSKI: For the forecasting
22 of export prices, our general approach that we
23 took in this exercise and prior to this exercise
24 and part of our decision-making in our analysis
25 for Wuskwatim was to start with knowing what our
698
1 current prices are and our current situation in
2 the market.
3 Then we hired an external consultant
4 to review what we were doing and to give their
5 opinion on that and then to give us their forecast
6 information.
7 Then we took that and also purchased
8 three sets of off-the-shelf forecast from three
9 other of the top consultants in North America.
10 Then we took the forecasts from these
11 four consultants and used them as a starting point
12 for our long-term forecast and considered that and
13 made judgment calls with all the background that
14 we have on what has been happening in our market
15 and with all the information we have from our
16 ongoing discussions with others in the market and
17 our own experiences and all the other general
18 information we had about that market.
19 MR. ABRA: Now, the consultants that
20 you used, is it DRI-WEFA? Is that how you
21 pronounce it?
22 MR. WOJCZYNSKI: DRI-WEFA, they have
23 now changed their name in the meantime to "Global
24 Insights". It is the same firm. They have just
25 changed their name.
699
1 MR. ABRA: DRI-WEFA is D-R-I-W-E-F-A?
2 MR. WOJCZYNSKI: Yes.
3 MR. ABRA: The second was Henwood
4 Energy Services?
5 MR. WOJCZYNSKI: Yes.
6 MR. ABRA: And the third one was LCG
7 Consulting?
8 MR. WOJCZYNSKI: Yes.
9 MR. ABRA: And the fourth was ICF
10 Consulting?
11 MR. WOJCZYNSKI: Yes.
12 MR. ABRA: Now, Global Insights was
13 the one that actually did a review and the other
14 three, as you say, were off-the-shelf reports that
15 they had done already with respect to export
16 pricing?
17 MR. WOJCZYNSKI: Yes.
18 MR. ABRA: What was the approach taken
19 then by Global Insights, Mr. Wojczynski; do you
20 know?
21 MR. WOJCZYNSKI: The generic approach
22 taken was that they have their own models, their
23 own assessments of how the electric industry and
24 the gas industry -- the whole energy industry in
25 North America was going to evolve.
700
1 Then they have their own models that
2 assess how the markets are going to evolve and
3 what the prices are going to be in various
4 jurisdictions -- or various regions and they
5 applied the other information they have.
6 They are also -- DRI-WEFA, now Global
7 Insights -- are also very reputable and one of the
8 top-notch companies in North America looking at
9 gas prices. That's one of the reasons why we
10 choose them in the first place because they have
11 expertise in electricity and gas and gas is so
12 important in the electric industry.
13 So, they take their information on the
14 gas side as well and they fed it into their models
15 and then they did a number of runs looking at the
16 different possible scenarios, including what we
17 would call a reference case.
18 MR. ABRA: What conclusions did they
19 come to?
20 MR. WOJCZYNSKI: They -- in general
21 terms, they came up with a long-term forecast,
22 which was higher than we had seen earlier, say ten
23 years ago, and consistent with the kind of prices
24 that we were experiencing and seeing and expecting
25 to see increasing and those are the kinds of
701
1 results they got.
2 MR. ABRA: The other three
3 off-the-shelf forecasts that you purchased then,
4 they have a methodology that they use, I assume,
5 in their off-the-shelf forecasting, do they?
6 MR. WOJCZYNSKI: Yes.
7 MR. ABRA: What was the methodology
8 for each of the three? They were all different, I
9 believe, were they?
10 MR. WOJCZYNSKI: They were all
11 different, in that their final forecasts were all
12 different. But, their general methodology had a
13 lot of similarity in the sense of taking a large
14 amount of general information and regional
15 information and then having -- doing model runs,
16 looking into the future. So, that was a generic
17 approach.
18 Henwood Energy is one that we are
19 particularly familiar with because they have a
20 model -- a very detailed model of the electricity
21 markets that includes many different parameters,
22 including the transmission limitations between
23 subregions and detailed modeling of individual
24 units that is used by a lot of companies,
25 including ourself. We actually -- it is a
702
1 proprietary model that you have a lease on, on an
2 annual basis and that we have done some work with
3 as well and that we know many of the other
4 participants in the market use.
5 So, they have a very strong strength
6 in terms of their detailed electrical system
7 modeling and power system modeling.
8 So, they all generically go and model
9 what the future generation system -- what they
10 think it will be composed of and then what units
11 will run and then what the price of the
12 electricity on the margin would be from the
13 transactions that are happening, say, between
14 region and region.
15 MR. ABRA: Okay. Is it fair to say
16 that the Global Insights conclusion generally was
17 that energy prices will rise faster than
18 inflation?
19 MR. WOJCZYNSKI: Yes, that's correct.
20 MR. ABRA: Okay. And Henwood's
21 general conclusion was that there would be low
22 growth in energy pricing to approximately 2006,
23 then will rise rapidly between 2007 and 2012 and
24 then generally follow natural gas prices?
25 MR. WOJCZYNSKI: In general terms,
703
1 yes.
2 MR. ABRA: Okay. LCG's conclusion was
3 that there would be low increases in early years
4 again and then rapid rises to approximately 2015?
5 MR. WOJCZYNSKI: Yes.
6 MR. ABRA: And then it will stabilize
7 after 2015, generally, the prices?
8 MR. WOJCZYNSKI: Generally, yes. We
9 all recognize that there will always be ups and
10 downs -- but, yes.
11 MR. ABRA: But, that's the general
12 trend that they foresaw?
13 MR. WOJCZYNSKI: Yes, absolutely.
14 MR. ABRA: ICF was generally of the
15 view that electrical energy prices will probably
16 follow natural gas prices?
17 MR. WOJCZYNSKI: Yes.
18 MR. ABRA: Okay. Now, based on all of
19 the external -- the consultants that you used, how
20 did their results -- how were they then used --
21 you may have answered this, but I will ask it in
22 any event. How did you then use them to formulate
23 your export price forecast?
24 MR. WOJCZYNSKI: What we did is each
25 of these consultants ended up giving us, one way
704
1 or another or we got from them, what we called the
2 "reference price forecast". Let me just do a
3 quick reminder from day one and that is from an
4 environmental business-as-usual assumption.
5 That is assume that the environmental
6 standards and requirements for thermal generation
7 that are in place today or committed to being in
8 place -- like there is new legislation or new
9 regulations -- that those are in place and those
10 carry on into the future. Then, in general terms,
11 they each had a forecast which more or less
12 matched that kind of a scenario.
13 We took from each of the consultants
14 that reference forecast and so -- there were four
15 of them. We took an average of those four to come
16 up with a combined average of those four.
17 Then we did an adjustment about that
18 to -- because it was for the day-ahead market.
19 Their forecast is generally for what we call the
20 "day-ahead market", if there is exports being sold
21 in the real time, meaning from minute to minute.
22 There is the next-hour market, like,
23 people making commitments and negotiating for the
24 next hour. Every hour you make a sale for the
25 next hour.
705
1 There is also another set of trading
2 happening where people make commitments for the
3 next day and buy power for the next day and what
4 the modelers were generally were doing -- the
5 forecasters were modeling the next-day market.
6 So, we then took that reference
7 forecast and said, well, the long-term price --
8 the long-term export contracts will be slightly
9 higher than that and that is consistent with what
10 all the forecasters would say.
11 There also would be the short-term
12 price which would be a bit less than that. Then
13 we had this long-term price and the short-term
14 price based on the four forecasts. Now, that is
15 without having gone into the environmental
16 premium. That is just our reference forecast.
17 I believe that is what you were asking
18 about.
19 MR. ABRA: Yeah. Now, the approach
20 that you used then how did it differ from the
21 historical approach that you told me about
22 earlier, the traditional approach that you used
23 with respect to forecasting export prices
24 generally? Was there much difference with respect
25 to Wuskwatim specifically?
706
1 MR. WOJCZYNSKI: Well, historically,
2 we have always gone in and started with: What
3 information do we have, and what are our current
4 prices, and what commitments do we have, and what
5 are the general trends?
6 Many years ago -- it is ten years ago
7 now -- we had our own model that we used that we
8 developed in-house that did modeling for us into
9 the future. We used that to escalate our old
10 prices. That is what we have sort of, over the
11 last five, ten to 15 years would have used, for
12 example.
13 Over time, as the market has become
14 more deregulated and -- as the market has become
15 more deregulated and there has been more
16 competition or there has been more attraction
17 amongst more players, it became more important
18 for -- to have better modeling because you have
19 more players and more factors coming into effect.
20 We did then move to having this
21 Henwood model that I had mentioned and we were
22 running it ourselves. We hired Henwood to help
23 us, we got information from them and we decided
24 that as we are getting closer to having to have
25 the final information for making decisions on
707
1 Wuskwatim, that we wanted even better and more
2 information. We were continually improving our
3 process.
4 Then we went to four outside
5 consultants and four probably top consultants and
6 got their information. So, it is a continual
7 evolution of how we are doing things.
8 MR. ABRA: I was about to ask you
9 actually, but you pretty well answered it, what
10 significance deregulation has had to your
11 forecasting of export prices? Obviously, you did
12 take a closer look at your methodology once
13 deregulation came into place?
14 MR. WOJCZYNSKI: Yes, we did.
15 Actually, in some ways with deregulation, it has
16 made our job easier because now we are not subject
17 so much to the whims and the specific
18 circumstances of a few handful of players who we
19 are selling to.
20 Now, the market price is more being
21 established through the interplay of many
22 different players and that reduces the risks and
23 makes the ability to look forward and see what the
24 markets are going to be doing and are more
25 manageable and a realistic exercise.
708
1 MR. ABRA: Okay. I asked you
2 yesterday -- or at least the panel. I can't
3 remember which one it was that answered it --
4 about the implications of foreign exchange as far
5 as the purchase of equipment and so forth was
6 concerned for the building of the Wuskwatim dam.
7 How do you reduce the risks with
8 respect to your export pricing considering foreign
9 exchange fluctuations, in particular the U.S.
10 dollar; you are exporting to the U.S. of course?
11 MS. WRAY: What we do at Hydro itself
12 and have done a number of years now, we have tried
13 to establish a hedge between our export prices,
14 which come in in U.S. dollars and our debt.
15 So, we borrow part of our funding; a
16 fairly substantial amount. Maybe about 45 percent
17 now of Manitoba's debt is a U.S. debt.
18 As a consequence, you get a hedge
19 between interest payments, which are made in U.S.
20 dollars, and then the U.S. dollars which are
21 coming in on the revenue side.
22 In terms of Wuskwatim, I would expect
23 we would proceed on a similar basis in accordance
24 with the partnership wishes and Hydro may itself
25 engage in some additional hedging of that nature.
709
1 MR. ABRA: What is an environmental
2 premium as it relates to your price forecasting?
3 MR. WOJCZYNSKI: The environmental
4 premium is a label that we coined to be
5 descriptive of something. It is not really a
6 standard industry term.
7 By "environmental premium", what we
8 mean is if you take an environmental
9 business-as-usual scenario -- that I called the
10 reference case just now -- into the future, our
11 general expectation and industry's general
12 expectation is that there will be increasingly,
13 stringent, environmental regulation of coal and
14 natural gas generation.
15 So, the environmental premium is -- in
16 the future, if and when the regulation does become
17 more stringent for natural gas and coal
18 generation, how much more cost will that entail
19 for that generation and then because that
20 generation will cost that much more, when we
21 export into that market, we will get that
22 additional cost component in our export price.
23 So, we call that the environmental
24 premium. That means the export price premium
25 above and beyond the reference price.
710
1 MR. ABRA: Now, you do have, I think,
2 various scenarios as far as the environmental
3 premiums are concerned. In particular, you use
4 the terms NEEP, N-E-E-P; am I correct?
5 MR. WOJCZYNSKI: Yes.
6 MR. ABRA: And then 3PLEPP:
7 P-L-E-P-P?
8 MR. WOJCZYNSKI: Yes.
9 MR. ABRA: And then MEEP, M-E-E-P and
10 HEEP, H-E-E-P?
11 MR. WOJCZYNSKI: Yes.
12 MR. ABRA: Those are real buzz words.
13 MR. WOJCZYNSKI: They are.
14 MR. ABRA: What do they mean?
15 MR. WOJCZYNSKI: Okay. Low
16 environmental export premium was the reference one
17 where we are saying from an environmental point of
18 view, it is what is in place today and is
19 committed to being in place tomorrow, but --
20 because laws have been passed or regulation.
21 So, we are saying there is no
22 environmental export premium that is above what
23 governments have already put in place for
24 regulation.
25 The low environmental export
711
1 premium -- or LEEP -- is saying there will be some
2 increasing stringency for coal and natural gas.
3 Let's focus on The States because that
4 is where the primary focus is. There will likely
5 be -- there is almost certain to be that there
6 will be regulation on -- increased regulation on
7 sulfur dioxides, nitrous oxides and mercuries.
8 That is clearly -- something like that will be
9 happening.
10 Even the Bush Administration, which is
11 not known for its environmental emphasis, has
12 indicated that it wants to do something like that
13 and intends to do something like that. Canada has
14 already moved in that direction and is putting in
15 place measures.
16 So, in the LEEP, it assumes some of
17 that will happen and, plus, that there will be a
18 very modest greenhouse gas premium starting to
19 come into play over time and there is a figure
20 that talks about that.
21 We are assuming that prior to 2008 --
22 effectively, there will be very little. 2008
23 which is the beginning of the Kyoto first budget
24 period, we don't think the United States is going
25 to ratify Kyoto. As a matter of fact, we assume
712
1 that it does not. But, there begins to be some
2 regulation of greenhouse gases, very modest, and
3 over time, it gets a bit more stringent. So,
4 that's what LEEP means.
5 MR. ABRA: Okay.
6 MR. WOJCZYNSKI: I can't remember if
7 you asked me to explain the other two as well?
8 MR. ABRA: MEEP is then the medium
9 environmental export premium; am I correct?
10 MR. WOJCZYNSKI: Yes, that's right,
11 and that assumes that the regulation of those
12 first three -- and I hate to use too many more
13 acronyms, but it is called the "3P" and that's the
14 three pollutants. That's the term the Bush
15 Administration uses. The 3P regulation and there
16 is also 4P. The fourth is greenhouse gases.
17 What we assume in the MEEP is that the
18 first three will be regulated and that there will
19 be a medium amount of greenhouse gas regulation,
20 stabilizing at $20 per ton of COŽ in 2020. That's
21 consistent with a reasonably moderate carbon
22 target, such as a return to 2000 levels with a
23 slightly lower degree of flexibility than LEEP.
24 When we are talking about carbon
25 targets, the best explanation I can give you is
713
1 the Kyoto treaty -- or Kyoto Protocol, pardon
2 me -- that uses a target that in the 2008 to 2012
3 budget period, that the greenhouse gas levels have
4 to return to 6 percent below than what they were
5 in 1990. So, the target years are related back to
6 1990.
7 The MEEP level is much more modest
8 than that. It says that it has to be a return to
9 2000 levels and it doesn't have to be below 2000
10 levels. There was in the order of, like, a 20
11 percent increase since 1990.
12 So, this is much more modest than
13 anything like Kyoto. Do you want me to go on to
14 HEEP?
15 MR. ABRA: Yeah. Well, that is the
16 high environmental export premium -- backtracking
17 for just a moment, you referred to the 3Ps and
18 then the 4Ps. What are the 3Ps?
19 MR. WOJCZYNSKI: Nitrous --
20 MR. ABRA: "P" stands for what?
21 MR. WOJCZYNSKI: Pollutant.
22 MR. ABRA: And it is Nitrous oxide?
23 MR. WOJCZYNSKI: Sulfur dioxide and
24 mercury. And what we are talking about here is
25 air emissions because with coal plants and much --
714
1 essentially not very much from gas plants, but
2 coal plants put a lot of mercury into the air
3 because it is contained in the coal.
4 The gas plants can produce nitrous
5 oxides, although not much sulfur dioxide.
6 MR. ABRA: The fourth P is what, I am
7 sorry?
8 MR. WOJCZYNSKI: Greenhouse gases.
9 MR. ABRA: The environmental export
10 premiums then, what part do they play as far as
11 your export forecasting is concerned?
12 MR. WOJCZYNSKI: The environmental
13 premiums are each added to the reference one, to
14 the reference price, and we assign different
15 probabilities to them.
16 In the earlier years, the vast
17 majority of the probabilities assigned to the
18 reference case, and there is only a small
19 probability assigned to the low environmental
20 premium and essentially zero to the high.
21 Over time, everybody pretty well
22 expects there will be more stringent regulations.
23 By the time we get up to 2030, around there, there
24 is not much likelihood remaining with the low
25 environmental premium and the probabilities are
715
1 spread out between the low, medium and high.
2 Then we take a probabilistic weighting
3 of those to come up with our ultimate export
4 revenue that we expect to get.
5 MR. ABRA: Okay. All right. You said
6 a few moments ago that the forecasted export
7 prices in the Wuskwatim projections are different
8 from the export prices included in your integrated
9 financial forecast, the IFF? For the -- for the
10 whole --
11 MR. WOJCZYNSKI: Our IFF, integrated
12 financial forecast, does use the weighted average
13 export price going into the future.
14 When I said we would take a
15 probabilistic weighting of the four scenarios, the
16 reference, the LEEP, the NEEP, the MEEP, the HEEP.
17 MR. ABRA: Yes.
18 MR. WOJCZYNSKI: The integrated
19 financial forecast that our rates are based on and
20 our whole integrated financial forecast is based
21 on that weighted average of those four scenarios.
22 It was not the case three years ago. It has been
23 for the last two years.
24 MR. ABRA: Does the IFF take into
25 consideration all of the opinions that you
716
1 received with respect to the consultants in the
2 setting of the Wuskwatim pricing is really --
3 MR. WOJCZYNSKI: Yes, it does.
4 MR. ABRA: Now, you gave evidence on
5 Monday and you were asked, of course, during
6 numerous -- or some of the information requests
7 about the export prices, in particular, as they
8 relate to Wuskwatim. You gave sort of the low
9 expected price and the high expected price. How
10 were those determined? You gave the range of the
11 low and then the high?
12 MR. WOJCZYNSKI: One moment. I just
13 want to find -- oh, there they are.
14 Yes, with the low and the high, we
15 used as the starting point -- and it may or may
16 not -- it probably will be easier to reference
17 figure 5.9 in the original submission. That might
18 be of benefit.
19 MR. ABRA: It is in page 46 of the
20 filing?
21 MR. WOJCZYNSKI: Yes, it is. Sorry, I
22 should have mentioned the page number. My
23 apologies.
24 MR. ABRA: I think it is also -- it is
25 from Monday; is it not?
717
1 MR. WOJCZYNSKI: It is also in page 15
2 in the presentations. That might be easier for
3 people to find.
4 MR. ABRA: Right. Page 15 under the
5 NFAAT of the presentation?
6 MR. WOJCZYNSKI: Yes, page 15 under
7 the NFAAT, yes.
8 Do you want me to wait a minute?
9 MR. ABRA: I think we all have it.
10 MR. WOJCZYNSKI: Okay. If you take a
11 look at -- there is a line -- a dash line going
12 up. That's the demarcation between historical
13 prices and the future and you see where our prices
14 cross that. Essentially, that's the last year, if
15 you want to think of it that way.
16 The prices over those few years are
17 sort of what our current experience is. Let's
18 call it a four-year period, roughly, and our
19 market is still continuing to see those prices.
20 So, we view that as our starting point.
21 What we did for our forecast is -- and
22 I will focus on the low -- the low and high of
23 equal probability, but I will focus on the low
24 right now. The low, there is two main components
25 that we can look at: The long-term firm contracts
718
1 that we talked about before and then there is the
2 short-term opportunity contracts and transactions.
3 The long-term ones, we take the prices
4 that we have recently experienced and have been
5 able to negotiate and see and we assume that those
6 carry on into the future at that -- or a little
7 bit lower than what we have been seeing, with no
8 real escalation, just matching inflation.
9 Then the other component is the
10 short-term opportunity. We assume that in the
11 future that will equal on the average what we have
12 been recently experiencing, with a very low level
13 of real escalation into the future and that very
14 low level of real escalation into the future would
15 be lower than what most people are expecting will
16 happen.
17 So, we combine those two and that
18 becomes our low export price forecast.
19 We recognize some years it will be
20 higher and some years it will be lower. That's a
21 given and normal. But, on the average, that's
22 what we expect will happen.
23 The high, we did something like that,
24 except we assumed that prices -- we had the same
25 starting point, but we assume that they will --
719
1 the environmental premiums will be kicking in and
2 that there will be higher gas prices and there
3 will be real escalation. So, the high was a more
4 optimistic scenario. The low and the high are
5 bound in the expected prices. The expected prices
6 are in-between those two lines.
7 MR. ABRA: Okay. There is a
8 difference, as you have testified, between the
9 forecasted domestic rates and the forecasted
10 export rates. You expect the export rates
11 generally to be higher than the domestic rates; am
12 I correct?
13 MR. WOJCZYNSKI: Oh, the domestic
14 rate, you mean our customer rates?
15 MR. ABRA: Yes.
16 MR. WOJCZYNSKI: Oh, sorry. Yes,
17 that's true.
18 MR. ABRA: Domestic customers?
19 MR. WOJCZYNSKI: Yes.
20 MR. ABRA: As opposed to the export
21 rates. You expect the export rates to be higher
22 than your domestic customer rates?
23 MR. WOJCZYNSKI: Very clearly.
24 MR. MAYER: They better stop building
25 if they are not going to be.
720
1 MR. ABRA: Wuskwatim is being built
2 for the purpose of export, at least according to
3 what you have told us, until 2020 approximately
4 when you think it may be necessary for domestic
5 pricing?
6 MR. WOJCZYNSKI: Yes.
7 MR. ABRA: Has there been any kind of
8 analysis done as to the viability of -- as to the
9 domestic rates at all? The domestic customer
10 rates?
11 MR. WOJCZYNSKI: We have --
12 MR. ABRA: Would it be viable?
13 MR. WOJCZYNSKI: Let's -- let me
14 explain the difficulty I am having with that
15 question.
16 If we advanced Wuskwatim to 2010, the
17 domestic customers won't be utilizing Wuskwatim
18 directly because we have already got enough supply
19 for it.
20 MR. ABRA: I understand.
21 MR. WOJCZYNSKI: So, then the next
22 thing we could look at is out in 2020, when
23 domestic customers do need a new form of supply,
24 what would our best resource be at that time? Our
25 analyses have confirmed and concluded that
721
1 Wuskwatim would be the best resource at that time.
2 It could be that you are asking a
3 third question and that is if you were -- if we
4 were to export Wuskwatim and all we were to get
5 for it is a price equal to the domestic price,
6 would Wuskwatim be viable? But, I don't know if
7 that is the question you're asking?
8 MR. ABRA: Just the issue of the
9 pricing. I mean, whether you sell it on the
10 export market with a price that is the same as
11 what the domestic price is or you use it in the
12 domestic pricing, what I am wanting to know is
13 whether or not Wuskwatim would be a go with just
14 the domestic prices as they presently exist, even
15 if it was the price on the export market?
16 MR. WOJCZYNSKI: I will give you two
17 answers.
18 MR. ABRA: What is your walk-away
19 price? Let's put it that way.
20 MR. WOJCZYNSKI: The first is that if
21 you are looking at the domestic market and having
22 a load -- pardon me. A supply to meet the
23 domestic market, we would not be using a 9 or 8 or
24 10 percent hurdle rate.
25 MR. ABRA: It would be lower?
722
1 MR. WOJCZYNSKI: We would use the 6
2 percent hurdle rate. So that reduces the cost of
3 the resource.
4 MR. ABRA: Okay, we will get to that
5 in a moment -- at least on to a different topic,
6 but I understand your answer.
7 MR. WOJCZYNSKI: So, in that case --
8 one moment.
9 Subject to check, if we then applied a
10 five-cent Canadian price and used the lower hurdle
11 rate, Wuskwatim would still be economic, but we
12 would have to give that subject to check. I was
13 using that the average domestic price and calling
14 that around five cents. It is a little bit less
15 than that.
16 MR. ABRA: Okay. Do I understand you
17 to be saying that even if the export price drops
18 to within a range of what the domestic price is,
19 that Wuskwatim would still be a go?
20 MR. WOJCZYNSKI: No, that's not what I
21 was saying.
22 MR. ABRA: Sorry, I misunderstood.
23 MR. WOJCZYNSKI: I was saying if we
24 were supplying the domestic market and you are
25 looking at Wuskwatim supplying the domestic market
723
1 being used for domestic load, then we would not
2 have to have the profit margin built into
3 Wuskwatim that we do to the export market and we
4 would use what is called a lower hurdle rate; a
5 lower cost of capital.
6 In that case, effectively, the cost of
7 Wuskwatim is lessened and it would be similar to
8 the kind of price domestic customers are paying.
9 MR. ABRA: So, it is fair to say that
10 you -- and I am not trying to put words in your
11 mouth, but I think what you have been saying over
12 the last couple of days is that your expectation
13 is -- or that your past history has always been
14 that the export price is higher than the domestic
15 price. Your expectation is it will continue to be
16 higher than the domestic price and it is based on
17 the export price that you want to proceed with
18 Wuskwatim at the present time?
19 MR. WOJCZYNSKI: Yes.
20 MR. ABRA: You may have given this
21 evidence before, but I just want to ask: The
22 forecasting that you do is it done annually,
23 monthly, weekly, daily; how often do you do it?
24 MR. WOJCZYNSKI: Well, I will answer
25 part of that and Mr. Cormie can answer the other
724
1 part.
2 We do forecasts for the long-term,
3 very long-term, for evaluating wind, Wuskwatim,
4 DSM, other resources and we use the same export
5 price for all of those. Those are long-term and
6 we look at them every year or so.
7 Ideally, we would update them every
8 year, but the staff who would do that are the same
9 staff that are here. So, we don't necessarily get
10 to it every year, but it would be with that kind
11 of frequency. The shorter term forecast we use
12 for other purposes.
13 MR. CORMIE: For the purpose of
14 operational planning, we update our forecasts as
15 frequently as monthly to look at short-term trends
16 in pricing, but that is just for -- within the
17 year, operational planning, you know, is energy
18 more valuable today or next month or next season?
19 Those we update much more frequently than the
20 very, very long-term price forecasts that
21 Mr. Wojczynski was speaking of.
22 MR. ABRA: But, your long-term price
23 forecasting, how often do you do it?
24 MR. CORMIE: Annually.
25 MR. ABRA: Annually?
725
1 MR. CORMIE: Yes.
2 MR. ABRA: Does the prices of energy
3 sources have any impact upon the price of Hydro
4 electricity? For example, if the natural gas
5 price goes up does it impact upon the pricing for
6 hydro electricity or if coal pricing goes up, or
7 vice versa, if either of them go down?
8 MR. WOJCZYNSKI: The change in the
9 price of coal or gas does not change the cost of
10 the hydro, but it does change the price on the
11 export market. So, it does change the price we
12 can obtain for our product, yes.
13 MR. ABRA: So, for example, if the
14 price of natural gas in the United States were to
15 drop 10 percent, might that result in a 10-percent
16 drop in pricing of hydro electricity?
17 MR. WOJCZYNSKI: There isn't
18 necessarily quite a one-to-one correlation like
19 that because there are other elements in the
20 price. But, generally, that's the kind of thing
21 that would happen.
22 MS. WRAY: We did do some analysis on
23 that in response to your request from the TAC
24 early on in the game. That was at CCC/NFAAT/S/3.
25 The question was posed: How far would the price
726
1 of natural -- or how far would export prices have
2 to drop before you would only get a return equal
3 to our cost of capital?
4 We looked at what the corresponding
5 drop in natural gas would be and concluded that if
6 our starting point in our low export price
7 forecast was a gas cost of $3.10 U.S. per million
8 BTUs in 2002 dollars, that's inherent in our
9 filing, $3.10 U.S., that would have to drop all
10 the way to a $1.25 to get a 30 percent decline in
11 export prices from the low case and even then, we
12 would still have a cost -- we would get a return
13 on Wuskwatim of over 6 percent, which is our
14 weighted average cost of capital.
15 So, in fact, you would have to see a
16 very large drop in gas prices to have quite a bit
17 smaller drop in export rates and in both cases,
18 they are fairly extreme and I suggest a very high
19 unlikelihood.
20 MR. WOJCZYNSKI: I might supplement
21 that with a note that there is great uncertainty
22 in natural gas prices, although the general
23 indication in the industry is it is going higher
24 end rather than lower end.
25 Just to provide some context for the
727
1 Commission and everybody else here today, if you
2 go take a look at NYMEX, the New York Mercantile
3 Exchange, from yesterday, the closing was that if
4 you go one year into the future, to January 2005
5 for example, the price per BTU of natural gas in
6 U.S. dollars was $6.12. You can compare that to
7 the $3.10 that Ms. Wray just talked about.
8 The forecast we have been using in the
9 past while on the basis of this submission, was in
10 the order if you go out to 2009, just over $3 to
11 under $4 was the low to high range.
12 So, the current price, looking at one
13 year from now is $6, which is 50 percent at least
14 higher than that.
15 Now general expectation, the
16 consultants say that will come back down over time
17 and then go back up again.
18 That's just to give you some context
19 as to where natural gas prices are today and they
20 are fairly high and certainly a lot higher than
21 anything we are using in our evaluations.
22 MR. ABRA: You were asked, of course,
23 during the IRR process for the low and high
24 anticipated export prices and you have taken the
25 position throughout the proceedings that the
728
1 actual export price that you have based your
2 projections on is confidential for the purpose of
3 future negotiation.
4 Is it your position -- is it Hydro's
5 position that even if the low export price that
6 you have given to us in your projections is the
7 correct one, that the Wuskwatim project is viable?
8 MR. WOJCZYNSKI: What I had indicated
9 the other day on page 21 of our presentation -- I
10 will use the presentation. That's probably easier
11 for everybody to find rather than going back to
12 all the interrogatories in the submission.
13 If you go back to page 21 and that
14 shows the IRR Reals of Waskwatim advancement, and
15 we showed a low export price 8.5 percent.
16 What we were saying and -- you get the
17 same answer whether it was the original submission
18 or update. It is essentially the same kind of
19 numbers. Our best guess looking into the future
20 is that the export price that we are forecasting
21 will give us around 10 percent IRR.
22 If the risk happens that we are wrong
23 and the export price drops to the low, we will
24 still get an IRR of 8.5, 8.2; something like that.
25 The project would still be profitable.
729
1 When you are looking at IRRs and
2 hurdle rates, what is an acceptable IRR, the basic
3 and methodology that everyone agrees on, the
4 finance textbooks and all the practitioners. You
5 say, what is your acceptable kind of hurdle rate
6 or range of acceptable IRR? Your best guess
7 should get you into that. When you do the risks,
8 it can drop below that. That is perfectly
9 acceptable.
10 So, what we are talking about here is
11 anything around 10 percent or 9.5 or 9 would be an
12 acceptable IRR. Where the exact cut-off is -- we
13 don't know where the exact cut-off is, but we are
14 well above it with our 10 percent. And 8.5 is
15 still a very profitable project.
16 MR. ABRA: Mr. Chairman, I am now
17 moving briefly into the area of internal rate of
18 return of which we heard much evidence so far. I
19 hope we won't be very long with it.
20 Are there any questions the Panel
21 Members have related to export pricing before I
22 move on?
23 THE CHAIRMAN: Yes, Kathy?
24 MS. AVERY KINEW: Mr. Wojczynski, I
25 don't know if everyone in the public knows, but
730
1 Manitoba Hydro has costs in regulation. You have
2 to cover the costs of hearings when you go for
3 general rate reviews, et cetera, and situations
4 like this.
5 Is it also the case when you go for an
6 export contract? Do you sometimes have to appear
7 before a regulatory board in The States?
8 MR. WOJCZYNSKI: We don't have to
9 appear in front of them in The States, but we have
10 the National Energy Board that we may have to
11 appear before, depending on the export
12 arrangement.
13 MR. CORMIE: For export sales that
14 have a duration of longer than three years, we are
15 required to seek an export permit from the
16 National Energy Board. The National Energy Board
17 may require a public hearing as part of that
18 process or they may not, depending upon the public
19 interest and there would be a cost of attending
20 that hearing.
21 MS. AVERY KINEW: Those costs would be
22 under Operation and Administration? Would they
23 been captured in some of the filings under that
24 category?
25 MR. CORMIE: We haven't included those
731
1 costs in the analysis for Wuskwatim.
2 In absolute dollars, it would probably
3 be less than a million dollars. For example, the
4 500-megawatt sale to Northern States Power was --
5 I think had revenues over the contract term of one
6 and a half billion dollars. So, it is a very
7 small percentage of the revenues from the sale.
8 So, it is, you know, a very small cost.
9 MR. WOJCZYNSKI: You could take an
10 example that an export contract with Wuskwatim
11 would be somewhere between 50 to $100 million a
12 year and say it is a ten-year contract, for
13 example. So, if you have a hearing that cost you
14 less than a million dollars, it is not something
15 significant and noticeable in the overall export
16 price.
17 MS. AVERY KINEW: Where do you put
18 those costs, I am just wondering?
19 MR. WOJCZYNSKI: Where would they show
20 up in the financial statements, Lyn?
21 MS. WRAY: Subject to check, I believe
22 those costs would be netted in the export sales.
23 My belief is that they wouldn't come
24 anywhere close to a million dollars, by the way.
25 But, I will check where those costs are in the
732
1 financial statements.
2
3 (UNDERTAKING MH-13: Check where cost of hearings
4 are filed)
5
6 MS. AVERY KINEW: I understand
7 Manitoba Hydro has been affected, I would say, by
8 a campaign by one of the Cree Nations about
9 whether Hydro is a clean power source and there
10 must be a cost too that you have to forecast as
11 well when you are making these sales?
12 MR. WOJCZYNSKI: There is two aspects
13 to this. Does it affect our price or it isn't
14 affecting our price, if that's what you are --
15 MS. AVERY KINEW: I was wondering --
16 MR. WOJCZYNSKI: No, we are not seeing
17 that affect our price and don't expect it will
18 affect our price.
19 MR. CORMIE: With regard to whether
20 there will be a public hearing under the National
21 Energy Board permit process, it is rare that we
22 actually go to a hearing. It is generally done --
23 it is a written application. It is rare to go to
24 a hearing process.
25 MR. MAYER: Following on that, I think
733
1 what we are talking about at this end of the table
2 is we have been made aware that there has been a
3 substantial lobby mounted in The States against
4 the purchase of Hydro power, particularly by PCN.
5 Where are those costs? We understand you have
6 also had to defend yourselves.
7 MR. ADAMS: Maybe I can answer that
8 one. There are costs associated with maintaining
9 a presence in the United States. The cost of
10 doing that have been increasing fairly
11 substantially for about a ten-year period. We are
12 not liable for any regulatory or administrative
13 costs in the U.S. We don't have to appear before
14 the MPUC, our customers do.
15 So, a lot what we do is in support of
16 our customers and, obviously, it takes a lot of
17 time and effort to be in the U.S. We spend a
18 significant amount of effort in Washington. We
19 spend a significant time in St. Paul, out of
20 necessity.
21 All of those costs we consider to be
22 part of the background marketing effort and that
23 any incremental costs that might be associated
24 with Wuskwatim per se, are immaterial.
25 We are selling, typically on a good
734
1 summer day, about 2200 megawatts worth of energy
2 in the U.S. At best, Wuskwatim -- it will not add
3 to the 2200, but it will make up the 2200.
4 So, none of that -- or a very small
5 portion of those sorts of costs will ever get
6 charged back to the partnership. It is an
7 inherent and constant part of Manitoba Hydro's
8 cost of doing business.
9 MS. AVERY KINEW: So, I would take it
10 that the partnership with Nischawaysihk would
11 allow you to argue that now there is a page being
12 turned and that you are -- that the low head
13 design of Wuskwatim is more environmentally
14 friendly and that you do now have a clean source
15 of electric power? You are now able to present
16 that case, so I would say; is this correct?
17 MR. ADAMS: I would prefer that
18 Nischawaysihk spoke for themselves, but certainly
19 we have participated jointly and also with TCN
20 from Split Lake in activities with regulators,
21 politicians and others in the U.S., trying to
22 make -- amongst other things, but trying to make
23 that case, yes.
24 MS. AVERY KINEW: I was just thinking
25 in terms of the Visa ad where it says the cost of
735
1 this is something and then so the cost of the
2 partnership with Nischawaysihk is priceless.
3 MR. MAYER: That is Mastercard, but
4 whatever.
5 MS. AVERY KINEW: Mastercard. Okay,
6 thank you.
7 THE CHAIRMAN: Any more questions?
8 MR. ABRA: I just had one more, excuse
9 me before I go to the next area.
10 Have you done any assessment over the
11 years as to how accurate your forecast of export
12 prices has been? In other words, have you found
13 generally over the last number of years you have
14 been pretty well bang on or has there been any
15 kind of an assessment that has been done in that
16 regard?
17 MR. WOJCZYNSKI: The tendency -- we
18 don't have a formal study that we can put on the
19 table. But, the general tendency is that the
20 forecasts have understated what the price ends up
21 being, but I don't want to try and claim that that
22 will be the case forever, but that has been the
23 tendency.
24 MR. ABRA: Historically, that has been
25 the tendency --
736
1 MR. WOJCZYNSKI: Yes.
2 MR. ABRA: -- that you have
3 understated the forecast of export prices?
4 MR. WOJCZYNSKI: Yes.
5 MR. ABRA: Internal rate of return we
6 have heard lots about over the last couple of
7 days. Basically the definition is the discount
8 rate at which the present value of the cost and
9 benefits are equal?
10 MR. WOJCZYNSKI: Yes, that is closer
11 to the technical definition that I was avoiding
12 the other day and trying to give a more layperson
13 explanation, but, yes.
14 MR. ABRA: Well, I only learned it
15 from the accountants.
16 What specific costs and benefits are
17 included in the calculations when you did your
18 internal rate of return?
19 MR. WOJCZYNSKI: On the cost side, all
20 capital costs -- okay, we are talking about
21 Wuskwatim here, I am assuming?
22 MR. ABRA: Yes, cost of the generation
23 station?
24 MR. WOJCZYNSKI: Yes, the cost of the
25 generating station.
737
1 MR. ABRA: Transmission lines?
2 MR. WOJCZYNSKI: Yes.
3 MR. ABRA: Transmission stations?
4 MR. WOJCZYNSKI: Yes.
5 MR. ABRA: Annual operating and
6 maintenance costs?
7 MR. WOJCZYNSKI: Yes.
8 MR. ABRA: Incremental water rentals?
9 MR. WOJCZYNSKI: Yes.
10 MR. ABRA: Transmission developmental
11 fund?
12 MR. WOJCZYNSKI: Yes.
13 MR. ABRA: Capital tax payment?
14 MR. WOJCZYNSKI: Yes.
15 MR. ABRA: Sunk costs are not
16 included?
17 MR. WOJCZYNSKI: Yes.
18 MR. ABRA: Yes, they are or, no, they
19 are not?
20 MR. WOJCZYNSKI: Yes, they are not
21 included -- no, they are not included. I am
22 agreeing with you, yes, yes, yes.
23 MR. ABRA: Then it includes revenues
24 as well?
25 MR. WOJCZYNSKI: Yes, it does.
738
1 MR. ABRA: Which is the sales of
2 electric power and system operation benefits such
3 as the reduced imports or thermal use?
4 MR. WOJCZYNSKI: Yes.
5 MR. ABRA: That's basically how you
6 arrive at your IRR, your internal rate of return?
7 MR. WOJCZYNSKI: Yes.
8 MR. ABRA: Now, hurdle rates, you have
9 described. Basically that's the hurdle that you
10 have to get over to make it a profitable project;
11 am I correct?
12 MR. WOJCZYNSKI: Not quite, no.
13 MR. ABRA: Go ahead and tell me?
14 MR. WOJCZYNSKI: The project -- can we
15 go back to figure 20?
16 MR. ABRA: In the presentation?
17 MR. WOJCZYNSKI: Sorry, page 20, my
18 apologies, the presentation from Monday, NFAAT
19 page 20.
20 MR. ABRA: Yes.
21 MR. WOJCZYNSKI: Essentially, if you
22 get an IRR above 5.34 percent real, we are dealing
23 in real now, essentially anything above that over
24 the very long term is a profit. But your hurdle
25 rate is higher than the 5.34, because you want to
739
1 have a minimal level of profit. I alluded briefly
2 in my presentation to having a weighted average
3 cost of capital with an imputed amount of equity
4 return. And by that, what I was referring to is
5 that the corporation has established as its
6 weighted average cost of capital, with no risk
7 adjustment, essentially a 6 percent return, which
8 is what we would expect on our low risk projects.
9 But that already has a profit in it.
10 The reason we would require export
11 projects -- whether it is wind or Wuskwatim
12 doesn't matter -- we would want more than 6
13 percent as our hurdle rate, is that we want to
14 have, on an export project we want to have more
15 profit than we would for the projects that are
16 there just to meet domestic load. We want to have
17 the hurdle be higher than 6 percent for 2 reasons.
18 It is so that if a risk happens there is some
19 buffer before we start losing money, although we
20 don't think we will lose money with Wuskwatim.
21 MR. ABRA: But you build that risk
22 concern into the hurdle rate?
23 MR. WOJCZYNSKI: Yes. The second area
24 is that because you are taking some risk, you want
25 a bit of extra profit to reward the corporation in
740
1 effect for having taken that risk financially.
2 So, you would, as long as you have 5.34 or better
3 than that in the long term, you are making a
4 profit. But the rest is profit and risk coverage.
5 MR. ABRA: You put a buffer in above
6 the 5.34 to come to your hurdle rate?
7 MR. WOJCZYNSKI: Yes.
8 MR. ABRA: Okay. Now, you have stated
9 that it is a low to medium risk project, I
10 believe?
11 MR. WOJCZYNSKI: Yes.
12 MR. ABRA: Is that a risk that
13 Hydro -- in other words, do you use that type of
14 terminology in any project that you go into, that
15 it is low risk, medium risk, high risk?
16 MR. WOJCZYNSKI: Yes, or something in
17 between, yes.
18 MR. ABRA: Okay. In this particular
19 case you characterize it again as low to medium
20 risk?
21 MR. WOJCZYNSKI: Yes.
22 MR. ABRA: The reason for that is
23 what?
24 MR. WOJCZYNSKI: Because we have
25 looked at the project extensively, and it is
741
1 really a judgment, it is our judgment that this is
2 a low to medium risk, knowing the kind of risk of
3 the kind of projects that we could undertake and
4 do undertake, and we have looked at the capital
5 cost risk and the schedule risk that we talked
6 about the other day, and there is a very well
7 contained, very narrow risk there, not much risk
8 for us. We have looked extensively at the export
9 price and we, as confirmed by all the
10 sensitivities, we are not hugely sensitive to the
11 export price, and even at the low export price,
12 and we don't see it drop very low. And we looked
13 at all the other risks, the risk analysis that was
14 presented, and again, there are not huge risk
15 exposures out there, at least ones that have
16 significant probabilities.
17 MR. ABRA: Do you have any examples,
18 sort of off the top of your head, of what past
19 projects that Hydro has involved itself in that
20 might be low risk to medium risk?
21 MR. WOJCZYNSKI: A medium risk
22 project, a recent one, the last major generation
23 project we undertook was the combined cycle
24 project at Brandon that has been in place for a
25 couple of years. We categorized, we did have our
742
1 hurdle rate policy in place at that time, and we
2 categorized that as a medium risk project which we
3 required a 10 percent hurdle rate for.
4 MR. ABRA: What about low?
5 MR. WOJCZYNSKI: You could think of
6 some supply side efficiency projects as being low
7 risk, but even those, not quite all the way down
8 to low. And this is where it becomes more
9 difficult, like where exactly is the cut off?
10 Our normal procedure is, we will look
11 at a supply side efficiency project and we will
12 look at its return and see where it falls, and
13 normally it is not exactly at 6.9 or something, it
14 is high enough above that we don't have to worry
15 what should be the exact hurdle rate.
16 MR. ABRA: Okay.
17 MR. MAYER: You have described your --
18 you described a medium risk project being the gas
19 turbine. I am assuming that you didn't -- your
20 last major dam project was Limestone, and I take
21 it you probably didn't have this kind of hurdle
22 rate and risk analysis there?
23 MR. WOJCZYNSKI: We did have risk
24 analysis, but didn't use hurdle rates.
25 MR. MAYER: Okay. I am assuming that
743
1 didn't hit your low in terms of risk analysis. Is
2 it fair to say, at least am I hearing you say that
3 it is your opinion that this project is as low a
4 risk as project, or at least as low a risk a major
5 project as you have done?
6 MR. ADAMS: I would like to give the
7 short answer, yes, but it isn't quite that simple.
8 The added dimension of risk in this one is that we
9 don't have a customer in place yet. So, we are
10 building on spec, and we have never built on spec
11 before. But, as we have discussed fairly
12 extensively over the last 2 and a half days, we do
13 not consider the risk of not finding a customer
14 who is willing to pay an appropriate price to be
15 very high.
16 MR. ABRA: The hurdle rate I believe
17 at the present time is 5.98 percent for Wuskwatim?
18 MR. WOJCZYNSKI: That's the weighted
19 average cost of capital of the company is 5.98
20 percent, and that will be the hurdle rate for a
21 low risk project.
22 MR. ABRA: Okay. I think -- the
23 hurdle rate for Wuskwatim is what?
24 MR. WOJCZYNSKI: We have never
25 actually landed on the exact hurdle rate. We know
744
1 it will be more than 6 percent, less than 10
2 percent, and it is probably somewhere in the upper
3 half rather than the lower half. We never had to
4 land exactly on a hurdle rate for it. We know 9
5 percent would be acceptable, but we couldn't tell
6 you exactly, dropping below 9 percent, where all
7 of a sudden we would say, no, it is not
8 acceptable. We haven't had to make that
9 evaluation, and so we haven't come to that landing
10 or conclusion. But we know that at 9 percent we
11 would be comfortable.
12 MR. ABRA: In arriving at your
13 weighted average cost of capital then, which you
14 have said is 5.98 percent, what rate of debt and
15 what rate of equity have you used in that regard?
16 MS. WRAY: We have used I believe 7.35
17 percent cost of debt, and then for the cost of
18 equity it would be 3 percent more than that, or
19 10.35 percent.
20 MR. ABRA: Are those nominal or are
21 they real?
22 MS. WRAY: Those are nominal.
23 MR. ABRA: What is the real then?
24 MS. WRAY: I have to do the
25 calculation again -- but I am getting good at it.
745
1 So 1.735 divided by 1.02 is 1.525 --
2 sorry, 5.25 would be the real debt rate. And then
3 if you are going, dividing 1.1035 for your equity
4 by 1.02, you get 8.18. Now, you have to do the
5 weightings for that. So 75 percent of 5.25 is
6 3.94 -- sorry, 3.94, yeah. And 8.18 divided by 25
7 percent -- I am sorry, the 8.18 you divide by a
8 quarter, so you get 2, and add that on to the
9 3.94, so you should get 5.18, or very close. And
10 it is confirmed by an engineer.
11 MR. ABRA: Which was the number that I
12 asked you about earlier?
13 MS. WRAY: Yes.
14 MR. ABRA: Yes. So it is basically
15 the same, the weighted average cost of capital has
16 basically the same debt rate and equity rate then
17 of 5.98 percent?
18 MS. WRAY: Yes.
19 MR. ABRA: Okay. The last question I
20 have with respect to the internal rate of return,
21 in CAC/MH/NCN NFAAT II, question 58a, as in apple,
22 you have made the comment on page 2, there was a
23 financial analysis that was given to CAC/MSOS in
24 the first round, and the comment you made in
25 response to CAC's IR in the second round:
746
1 "The effect if any of the Wuskwatim
2 proposals on Manitoba Hydro customer
3 rates and the corporation's financial
4 stability..."
5 It goes on to say,
6 "With the extensive financial analysis
7 filed to date, the financial analysis
8 appropriately consider all aspects of
9 the partnership and examine the
10 financial impacts to customers with
11 and without Wuskwatim advancement.
12 Only within the financial model can
13 the details of the partnership,
14 including the complexities of the
15 financing arrangements, be properly
16 captured. The economic analysis is
17 not designed to incorporate these
18 complexities and as such examines the
19 project attractiveness as a whole.
20 What was provided in the original
21 CAC/MSOS/MH/NCN I NFAAT should
22 therefore be viewed as a special
23 purpose calculation that is
24 illustrative but should not be relied
25 upon in any way to judge the effect on
747
1 customer rates or corporate financial
2 stability."
3 My question to you is, why can't that
4 analysis be used to judge the effect on customer
5 rates?
6 MS. WRAY: Customer rates are
7 determined by the accounting for costs, not just
8 the cash flows. I am thinking of things like
9 depreciation policy, which is not a cash expense,
10 it is an accounting expense. So the way that the
11 numbers are presented in the financial statements
12 are the major determinant of rate increases. They
13 are looked at on an annual basis, not just in the
14 case of a single number. And accordingly, you
15 have to do a financial analysis which involves a
16 set of financial forecasts in order to be able to
17 determine on the one hand the difference that
18 Wuskwatim's advancement might make to rate
19 increases, or if you wish on the other hand,
20 holding rates the same, the effect that
21 Wuskwatim's advancement might have on the
22 corporation's debt ratio, interest coverage, and
23 other factors that might be viewed by credit
24 rating agencies. You don't get that kind of
25 information with an IRR.
748
1 MR. ABRA: You don't think it is the
2 appropriate way to judge what the impact is on
3 customer rates?
4 MS. WRAY: No, you wouldn't be able to
5 tell really, other than directionally, what the
6 impact would be.
7 MR. ABRA: Okay. We dealt yesterday
8 briefly with the financial statements that have
9 been prepared, that are contained in the book of
10 documents that I provided to you.
11 Are the cost and revenues that were
12 used in the calculation of the internal rate of
13 return consistent with what is in the projected
14 financial operating statements?
15 MS. WRAY: The ones you're referring
16 to, I take it, are the Manitoba Hydro financial
17 statements?
18 MR. ABRA: Well, initially they are,
19 except the back 8 pages are for the partnership.
20 MS. WRAY: Are for the partnership.
21 You can trace the numbers to the same source, in
22 that the financial statements originate with the
23 cash flows, and then we apply accounting policies
24 to them, but that's the only point of comparison.
25 The numbers that you find in the financial
749
1 statements are, first of all, for a particular
2 period of time, it only goes up to 2035, whereas I
3 believe the IRR calculations, theoretically at
4 least, will be for the useful life of the plant.
5 I think there is an end point at which there is a
6 terminal value or something like that. It goes --
7 it reaches over a longer period. But the main
8 difference would be that the financial statements
9 apply accounting policies and involve the
10 financing of the project. You will not see the 75
11 percent debt ratio in the IRR calculations. You
12 won't see finance expense. These things are
13 handled in some fashion, one might say by the
14 discount rate itself, but they are not explicit.
15 I think those are the main differences.
16 MR. ABRA: Okay. Dealing firstly with
17 the electric operation statements which are the
18 ones under the tab -- and there are the various
19 tables, 21, 22, 23, 24. How is the income from
20 the Wuskwatim power project recorded in the
21 statement of the electric operations for Hydro?
22 MS. WRAY: Well, we start with the
23 partnership income that you have at the back of
24 this tab.
25 MR. ABRA: Okay.
750
1 MS. WRAY: First of all, we have our
2 financial statements which are other than
3 Wuskwatim -- sorry, Wuskwatim 2020, and all of the
4 other things that are going on in the company.
5 But then we would amend those statements to take
6 account of the fact that Wuskwatim was coming in,
7 in 2009, and that Manitoba Hydro would have a 67
8 percent share of the dividends. There are a
9 series of other adjustments that have to be made
10 as well. I am thinking here on the income
11 statement. On the income statement we would also
12 be accruing interest on the loans that Manitoba
13 Hydro is making to NCN. Over on the balance
14 sheet, the way we were assuming that we will
15 account for this is that, first of all, all of the
16 costs and liabilities associated with -- on both
17 the asset and liability side of the balance sheet,
18 we would first of all, take a 100 percent of it on
19 to our balance sheet, and then we would subtract
20 out the NCN share. That's just the form of
21 accounting that we assume we will be using.
22 Again, on the balance sheet we would
23 be accruing the loans from NCN. And there is a
24 number of other adjustments as well which I
25 believe is laid out in one of the IRR responses.
751
1 I can go through it by memory if you would like,
2 but I think you are just wanting the general
3 drift?
4 MR. ABRA: That's right. Yes, that is
5 sufficient.
6 How is Hydro's equity from the
7 Wuskwatim project recorded in the electric
8 operations?
9 MS. WRAY: I think for purposes of
10 just putting these statements together, the NCN
11 portion of the revenue is deducted from a certain
12 line in the balance sheet. I am trying to
13 remember which one it is.
14 MR. ABRA: Which line is it?
15 MS. WRAY: The way it should be shown
16 is as a deduction at the bottom, as a minority
17 interest, but we have just for convenience in
18 these financial statements subtracted it from one
19 of the lines, and I will have to just check which
20 one it is.
21 MR. ABRA: You will undertake to do so
22 and give us the answer to that?
23 MS. WRAY: Yes.
24
25 (UNDERTAKING MH-14: Advise which line NCN portion
752
1 of the revenue is deducted from)
2
3 MR. ABRA: Do the statements contain
4 the various items related to the loans that are
5 being made to NCN, loan receivables, interest
6 income, and so on? And if they are recorded,
7 where are they? Do you want me to repeat that
8 question?
9 MS. WRAY: Yes, please.
10 MR. ABRA: Do the statements contain
11 the loans that are being made to NCN, such as the
12 receivables from the loan, the interest income and
13 so on?
14 MS. WRAY: Yes, those would be
15 contained in accounts receivable.
16 MR. ABRA: In accounts receivable?
17 MS. WRAY: Yes.
18 MR. ABRA: Are they broken down at all
19 to identify the NCN component specifically?
20 MS. WRAY: Not on these statements,
21 no.
22 MR. ABRA: Is that information
23 available?
24 MS. WRAY: Yes. And to my
25 recollection, I think we did provide a sample of
753
1 that in an interrogatory. So I can undertake to
2 find out where that is.
3 MR. ABRA: Okay.
4
5 (UNDERTAKING MH-15: Identify where in accounts
6 receivable NCN component is broken down)
7
8 MR. ABRA: Where do the statements
9 record the various costs that will be reimbursed
10 by the partnership for services provided by Hydro,
11 that includes of course construction costs,
12 operating and maintenance costs, management costs,
13 and so on?
14 MS. WRAY: On the partnership
15 statements, those are recorded at our best
16 estimate of what those costs will be. Over on the
17 consolidated statements, there would be obviously
18 inter-company eliminations, but they would
19 ultimately be included in Manitoba Hydro's cost of
20 operations, or fuel and power purchases.
21 MR. ABRA: Which line is it, ma'am?
22 MS. WRAY: You're asking which line on
23 the income statement would contain the costs of
24 Wuskwatim, operating costs? I think it would be
25 primarily in fuel and power purchase, because the
754
1 corporation is purchasing the output of Wuskwatim
2 from the partnership.
3 If it was an operating and
4 administrative expense, it would be in that line.
5 If it was a depreciation expense, it would be on
6 that line. This is on the consolidated
7 statements.
8 MR. ABRA: Are you referring to the
9 operating statements or the partnership
10 statements, Ms. Wray, I am sorry?
11 MS. WRAY: I was referring to the
12 consolidated operating statement when I commented
13 that the costs associated with Wuskwatim would be
14 blended in with the appropriate line item, whether
15 it is -- whether it is fuel and power purchase,
16 whether it is operating and administrative
17 expense, whether it is depreciation, it would be
18 consolidated in.
19 MR. ABRA: Does that include both
20 Hydro share and NCN share then?
21 MS. WRAY: In answer to a question
22 that I undertook to answer earlier, just for
23 convenience of the format that we already had,
24 rather than showing NCN's share as a deduction at
25 the bottom, we have it under "other" in the
755
1 revenue column. If you look at other revenue, you
2 will see that it starts at 6 million, 7 million,
3 and so forth for the earlier part of the forecast.
4 And then as you move into the year 2016, 2017,
5 2018, 2019 -- this is under the low price
6 scenario -- you see months being deducted.
7 Similarly, if you flip over to the
8 high price scenario for the 2009 case, which is
9 quite a few pages later on, then you would also
10 see higher negative numbers. That's not the way
11 we would present it when we actually get around to
12 putting together a proper set of financial
13 statements, it would show up as a separate line
14 item. But as I think we had explained, with the
15 filing, we had just put it in other revenue for
16 convenience.
17 I have found it now, the high price
18 scenario, which is just a few pages down, table
19 A.23, you can see it more clearly in the other
20 revenue. Round about 2010, you start seeing a
21 deduction of 2 million, growing to 7 million, 12
22 million, 14 million, and by the year 2019, it is
23 24 million. That represents NCN's share of net
24 income coming off the Manitoba Hydro operating
25 statement.
756
1 MR. ABRA: Okay, thank you.
2 If you take a look at the projected
3 operating statements that are A.21 and A.23, A.24,
4 there seems to be a general income rise up to the
5 year 2014, and then for the years 2014, 2015,
6 2016, 2017, and so forth, especially on the
7 attachment 7, table 24, and table 23, there is
8 suddenly quite a significant drop. Do you know
9 the reason for that?
10 MS. WRAY: Yes. It is a function of
11 the methodology we used to extrapolate our 10 year
12 statements out beyond that period. We usually do
13 an integrated financial forecast for 10 years. We
14 had to make some assumptions as to what our
15 financial targets might be after that, so that we
16 could have a base case that would be the same in
17 both the advancement scenario and the
18 non-advancement scenario. So, we decided to
19 assume that after the end of the integrated
20 financial forecast beginnings in 2015, we would
21 hold interest coverage at a stable amount. So, if
22 you look at the second last line, you will see
23 that interest coverage is 1.15 for every year
24 after 2013, which happened to be the end of our
25 financial forecast. So then the rate increases
757
1 just are driven entirely by what would be required
2 to get to that 115. We did this in our base case
3 with Wuskwatim coming in, in 2020. And then for
4 purposes of comparing Wuskwatim 2009, we had
5 exactly the same interest coverage of 1.15. It
6 happens to have the effect mathematically of
7 requiring rate decreases for a period of years,
8 and that in turn has a dramatic effect on net
9 income.
10 As stated in the filing, we believe
11 that the way this would be handled in actuality is
12 that we would try and smooth those rate increases
13 or rate decreases, and take forward our proposals
14 to the Public Utilities Board at that time. But
15 it is just a function of the mathematics of
16 holding to an interest coverage of 1.15.
17 MR. ABRA: Going next to the Wuskwatim
18 partnership statements, the specific items in net
19 revenues, finance expense, and other operating
20 items on the projected operating statements of the
21 Wuskwatim partnership, what are the specific items
22 in each of those lines?
23 MS. WRAY: Could you perhaps direct me
24 to a specific table and then we will all be
25 looking at same thing?
758
1 MR. ABRA: I am sorry. The last 8
2 pages, unfortunately they are a little bit out of
3 order, A.27 is the first one, A.25 is the second
4 one, A.26 is the third one, and A.28 is the last
5 one. So they are somewhat out of order. I
6 apologize, I put them together in the middle of
7 the night.
8 MS. WRAY: It is starting to feel like
9 that now.
10 MR. ABRA: I have felt like that for
11 two days.
12 What I am asking you, what specific
13 items are in the net revenue, the finance expense,
14 and the other operating items in those projected
15 operating statements?
16 MS. WRAY: Well, revenues are pretty
17 straightforward. They would just be the revenues
18 that the partnership would receive from Manitoba
19 Hydro as a result of the power that is being
20 generated by Wuskwatim. The expenses are finance
21 expense, which is laid out there, and then the
22 other expenses would be a charge for transmission,
23 the use of transmission, because the partnership
24 you will recall just owns the generating station,
25 not the transmission facilities, so there would be
759
1 a charge for the use of the transmission.
2 MR. ABRA: Right.
3 MS. WRAY: There would be an admin fee
4 for doing the books of the partnership, having
5 board meetings, that kind of thing. There would
6 be insurance costs. There would be a marketing
7 risk fee, and there would be operating and
8 maintenance.
9 MR. ABRA: Is that it?
10 MS. WRAY: Yes.
11 MR. ABRA: Okay. Now, you will notice
12 that the two separate sheets for each of the A.25,
13 26, 27, 28, are basically the low export price
14 scenario and the high export price scenario?
15 MS. WRAY: Yes.
16 MR. ABRA: Is the only factor that
17 changes between those two projections the price?
18 MS. WRAY: I am trying to think if
19 interest expense would change as well. I will
20 just have to take a look.
21 No, I think it is just -- essentially
22 it is just the price. There are little bits of
23 variations I see in finance expense, but that is
24 probably just due to the timing of the dividends.
25 MR. ABRA: Going quickly to
760
1 debt/equity ratio, what is the financial target
2 debt/equity ratio?
3 MS. WRAY: For the partnership we have
4 assumed a debt/equity ratio of 75/25, 75 percent
5 debt, 25 percent equity.
6 MR. ABRA: That would basically be the
7 target? That is your assumption?
8 MS. WRAY: Yes, it is assumed that
9 from the outset the partnership will have that
10 structure and will maintain that structure, unless
11 the partners decide that they perhaps want to set
12 aside a little bit more equity for capital
13 contingencies down the road.
14 MR. ABRA: Okay.
15 MS. WRAY: For purposes of these
16 statements, we have assumed that dividends would
17 be paid out, or cash would be brought in so as to
18 maintain that ratio.
19 MR. ABRA: What is Hydro's target
20 debt/equity ratio for the electrical operations
21 and for the Wuskwatim project; is it the same?
22 MS. WRAY: We just have a debt/equity
23 target for our consolidated operations, including
24 gas, our target is 75/25.
25 MR. ABRA: It is the same ratio?
761
1 MS. WRAY: Yes.
2 MR. ABRA: It is the same as you have
3 set for the Wuskwatim partnership as well?
4 MS. WRAY: Yes, that was one of the
5 factors.
6 MR. ABRA: How are these targets
7 determined?
8 MS. WRAY: Well, in the case of the
9 Manitoba Hydro financial targets, they were
10 approved by our board. In the case of the
11 Wuskwatim partnership, we agreed that it would be
12 reasonable to use the same targets. We had done a
13 fair bit of research at the time we established
14 the Manitoba Hydro targets. We put other electric
15 utilities that were Crown owned, and independent
16 experts told us that that was a reasonable target
17 to aim for. And since this is also an electric
18 generating station, it seemed appropriate.
19 MR. ABRA: Has Hydro met its
20 debt/equity ratio targets in the past generally?
21 MS. WRAY: We have been moving
22 gradually towards them, and we are still planning
23 to move towards it in the future.
24 MR. ABRA: So you haven't met them
25 yet?
762
1 MS. WRAY: Our interest coverage
2 targets, we have met. That's an annual target
3 which is currently to exceed 1.1 interest
4 coverage, and we have exceeded that in certain
5 years and not in other years.
6 MR. ABRA: Why have you not been able
7 to reach them in certain years?
8 MS. WRAY: In the current year,
9 because of the drought primarily.
10 MR. ABRA: What about the other years?
11 I recognize that is kind of extraordinary this
12 past year.
13 MS. WRAY: I think it really depends
14 on the year. We have had -- it is only in the
15 last couple of years that we have had that
16 particular target, that it -- I would say the
17 current circumstances are the main reason why we
18 are not making it this year, but there were a
19 couple years ago where we exceeded it quite
20 substantially.
21 MR. ABRA: The debt/equity ratio?
22 MS. WRAY: Sorry, no, the interest
23 coverage.
24 MR. ABRA: What about the debt/equity
25 ratio?
763
1 MS. WRAY: We haven't attained 75/25,
2 but back in '96, I believe, we were up close to 90
3 percent, so we have come a long way. It is a long
4 term target.
5 MR. ABRA: What would the consequences
6 be of Hydro not meeting the target for the
7 purposes of the electric operation and the
8 partnership in particular?
9 MS. WRAY: Well, the main factor about
10 the debt/equity target is that it is a long term
11 target, and barring unforeseen circumstances, we
12 want to be making steady progress towards it. So,
13 as long as in a normal year we would be seeing an
14 improvement, I think we would be happy.
15 MR. ABRA: Okay. So in essence, there
16 is not any real consequence for not meeting the
17 target?
18 MS. WRAY: There would be a
19 consequence if we were seen to be --
20 MR. ABRA: Going backwards?
21 MS. WRAY: -- going backwards, and in
22 control of the situation.
23 MR. ABRA: As long as it continues to
24 improve, it is not as significant a consequence?
25 MS. WRAY: When we speak with credit
764
1 rating agencies, they have been very pleased to
2 see the progress that we have made over the last
3 several years. For instance, as I mentioned, in
4 1996 we had a debt ratio of 91 percent. In 2003,
5 we had improved that to 80 percent. Now we are
6 going to take a step backwards this year, as a
7 result of our impending loss, primarily due to
8 drought, but we hope that we will weather that and
9 start rebuilding it again.
10 In fact, in the last ten years, we
11 have had interest coverage in excess of 1.1.
12 MR. ABRA: Now, this isn't really in
13 the form of a question, but with respect to
14 sensitivity analysis, can you undertake to provide
15 to us projected financial statements under two
16 scenarios; the first one is assuming Wuskwatim,
17 plus 200 megawatts of wind and two times DSM?
18 MS. WRAY: The financial projections
19 are built on the economic engineering projections
20 that Mr. Wojczynski's group does, and so I would
21 have to check, first of all, if they have the
22 numbers for that particular scenario, or if they
23 have something close to that. We would then have
24 to run that through our financial model, which can
25 sometimes take a week or two. So, I will have to
765
1 see if we have something close that would expedite
2 the results.
3
4 (UNDERTAKING MH-16: Provide projected financial
5 statements under scenario assuming Wuskwatim, plus
6 200 megawatts of wind and two times DSM)
7
8 MR. ABRA: Then the second one is the
9 worst case scenario, low export price of 15
10 percent --
11 MS. WRAY: Low export price?
12 MR. ABRA: Yes, and then at a 15
13 percent capital cost increase --
14 MS. WRAY: I believe we have
15 already --
16 MR. ABRA: -- with 10 percent flow
17 reduction.
18 MS. WRAY: We wouldn't have a 10
19 percent flow reduction, but we have done a
20 financial sensitivity on drought occurring just at
21 the -- just at the beginning of the in service of
22 the plant, which I think for the purposes of
23 financial analysis, it is even more severe because
24 it comes right at the point where we would have no
25 revenues come in. I believe we have also done a
766
1 capital cost, an adverse capital cost financial
2 run. When I presented some of our results the
3 other day, I believe we had something very close
4 to that particular combination. We had done them
5 separately, but we added them.
6 And the conclusion was that it
7 wouldn't be any worse than what I showed you on
8 the screen, because if you have a low export
9 price, you also have a low import price. So a low
10 import price at the time of drought would actually
11 mitigate the drought a little bit.
12 What I had showed at that time was
13 that if you had low export prices of 15 percent
14 capital cost increase, and an extreme drought at
15 start-up, then you are -- at that front end where
16 your debt goes up a bit, it would be actually less
17 than a 2.4 percent increment to the debt ratio.
18 And I had also showed what the impact would be on
19 customer savings. So I think perhaps we have that
20 second scenario that you have just asked for.
21 MR. ABRA: No, but a financial
22 statement, not an IRR.
23 MS. WRAY: What we have provided is
24 financial statements for each of those
25 sensitivities, and I think what you're asking for
767
1 is can we combine them?
2 MR. ABRA: Yes.
3 MS. WRAY: I think we can do that, I
4 just don't how long it will take. It always takes
5 a bit longer to do the financial projections than
6 the other ones because we have to run it through a
7 model. But having done the base work for those
8 three sensitivities, we can do that. The other
9 one, we will have a look at it and see what is
10 available.
11 MR. ABRA: Okay. Thank you.
12
13 (UNDERTAKING # MH-17: Provide financial statement
14 for worst case scenario)
15
16 THE CHAIRMAN: Can we break here?
17 MR. ABRA: Yes. I am just about done
18 actually.
19 THE CHAIRMAN: Okay.
20 MR. ABRA: It will probably be 15
21 minutes more.
22 THE CHAIRMAN: Well, by then we will
23 be getting close to 9:00 o'clock. Maybe we should
24 have the break.
25 MR. ABRA: Sure.
768
1 THE CHAIRMAN: We have a break
2 scheduled for 8:30. We are a little past that
3 now, we are at 20 to. We will take a 10 minute
4 break at this time. And I will begin afterwards
5 by asking the Commission Secretary whether there
6 are participates who have given an indication that
7 they want to intervene on the process, when we
8 reconvene, after those 10 minute questions or
9 whatever that Mr. Abra wants to continue with.
10
11 (PROCEEDINGS RECESSED AT 8:40 AND
12 RECONVENED AT 8:55 P.M.)
13
14 THE CHAIRMAN: We will continue with
15 the remaining -- I am told by Mr. Abra that there
16 are just a few more questions, and then I will
17 check with the Commission Secretary where we stand
18 at that point with regards to whether others will
19 get to speak tonight, or in view of the time,
20 whether instead of starting something and stopping
21 more or less midway, mid sentence, we would
22 adjourn and reconvene then on Monday. So we will
23 judge that after Mr. Abra is finished questioning.
24 MR. ABRA: As I said to you before the
25 dinner break, I have some questions related to the
769
1 design of the generation station and also the
2 transmission lines. Some of them may relate to
3 EIS issues that you would prefer to have the EIS
4 panel answer, and if that is the case, don't
5 hesitate to say so. But I don't want to have to
6 call some of you back for questions that the EIS
7 panel says to me that you should have asked that
8 of the NFAAT panel. So I want to make sure I
9 cover all bases.
10 Firstly, by way of a general question,
11 in the original, the NFAAT filing, the overview at
12 page 7, you make the comment, and I quote,
13
14 "Considering the size and the lack of
15 recent experience of Manitoba's
16 environmental, engineering,
17 construction, labour and other
18 resources required for projects such
19 as these..."
20 which refers to Wuskwatim,
21 "It would be preferable to start with
22 a smaller plant such as Wuskwatim and
23 have the option of progressing later
24 to the larger Gull and Conawapa
25 plants."
770
1
2 Now that implies to us that there may
3 be a reluctance on the part of Hydro to welcome
4 opportunities that may come along with respect to
5 the advancement of one of the larger plants on the
6 Lower Nelson. Is there a reluctance on the part
7 of Hydro to so do?
8 MR. ADAMS: Not at all.
9 MR. ABRA: Why was that statement
10 made?
11 MR. ADAMS: The statement made is that
12 we -- I think you asked a series of questions
13 yesterday or the day before. It is 12 years since
14 we completed the last generating station. We have
15 a strong cadre of very senior people who are more
16 than capable of getting one or two of these
17 projects on the way. We do need the opportunity
18 to do three things. We need the opportunity to
19 enable the young people who work for us, and the
20 younger people who work for the various
21 consultants who were forced to "blood" themselves
22 on a real project, if you wish -- probably as
23 important, more significant is it does give us an
24 opportunity to create a longer period of
25 employment opportunity for people at the beginning
771
1 of a trades career.
2 As one of the overheads showed on
3 Monday, employment on a project is very peaky,
4 typically anything between four and eight months
5 in the summer, and then you get laid off in the
6 winter. So it is difficult to run somebody
7 through a complete apprenticeship program in a
8 short period on the project. So to build up a
9 level of expertise, in the north especially, in
10 the various trades, we would prefer to start with
11 a little one, move on to a medium sized one, and
12 head off to the big one.
13 Even with the sort of schedules that
14 we are contemplating, we would still have at least
15 two generating stations under construction most of
16 the time, and a comparable number of converter
17 stations and the associated transmission. So it
18 is a huge demand on the capability of the Province
19 to do these things.
20 But having said that, we will pursue
21 all opportunities as vigorously as we can, and if
22 for some reason we have to accelerate things, we
23 will find a way to do it.
24 MR. ABRA: We seem to be competing
25 with the band.
772
1 Going nextly to the water management
2 regime and the turbine design -- firstly, in
3 volume 4 of your filing under the heading
4 "inflows," you've based your inflows to the
5 generating station on estimates of inflow to South
6 Indian Lake back to 1912. And those figures have
7 been used to support critical technical and
8 financial decisions with respect to Wuskwatim
9 itself and the building of the generation station.
10 What is your level of confidence in
11 the data, considering that it does go back to
12 1912?
13 MR. CORMIE: Manitoba Hydro has
14 recorded flow histories on the Churchill River at
15 the Churchill Falls -- the Island Falls generating
16 station near the border of Saskatchewan and
17 Manitoba beginning in 1928. The majority of the
18 flow in the Churchill River has been recorded at
19 that point, since that time.
20 Prior to that, through regional
21 hydrology methods, we were able to, we extended
22 the record back to 1912. So there is about a 16
23 year period where the river flows on the Churchill
24 River have been estimated using statistical
25 correlations.
773
1 For the water shed between Island
2 Falls, or the Saskatchewan/Manitoba border to the
3 Wuskwatim Generating Station, we do not have
4 historical records for the entire record -- and
5 again we are using regional hydrological methods.
6 We filled in the flow period, I believe it is up
7 to 1950.
8 From 1950 onwards, we have pretty
9 accurate flow records for the Churchill River to
10 date.
11 So we have produced the best available
12 engineering techniques in order to extend the
13 record. The record is not a pure historical
14 record, there is a synthetic portion to that.
15 MR. ABRA: Again, I ask you, what is
16 your level of confidence in the data? If you
17 could put a percentage on it, for example, is it
18 plus or minus 10 percent, plus or minus
19 20 percent, 5 percent?
20 MR. CORMIE: Because the critical flow
21 period for the Manitoba Hydro system occurs in the
22 1940s, 1941, and we have recorded flows on the
23 Churchill River, our confidence in the dependable
24 capability of Wuskwatim is high. For the average
25 capability, there is some uncertainty there. But
774
1 the critical number is the dependable capability
2 and we have a high confidence in that number.
3 We have a drought almost equivalent in
4 severity to the 1940/41 event in a very recent
5 record in the 1987/88 drought, and again that
6 reconfirms our estimate in the dependable
7 capability.
8 MR. ABRA: So are you prepared to give
9 us some margin of error at all?
10 MR. CORMIE: Well, as I said, we are
11 confident in the dependable capability, highly
12 confident in the dependable capability of the
13 Wuskwatim plant. There is some uncertainty in the
14 long term average because it is affected by that
15 synthetic record that we've had to generate based
16 upon regional hydrology, based on the
17 precipitation records that were available.
18 We believe that our estimate of the
19 long term average flow is within 5 percent,
20 80 percent of the time, plus or minus 5 percent.
21 MR. ABRA: 80 percent of the time.
22 Mr. Cormie, you said, you made the
23 comment yesterday, and I believe we wrote it down
24 correctly, or the essence of what you said was
25 that it was intended that the Wuskwatim Generating
775
1 Station would be operated as an integral part of
2 and in the best interests of the overall
3 generation system of the Nelson River and so
4 forth. And yet, of course, as you have already
5 testified, the Wuskwatim station will be operated
6 as a modified run-of-the-river plant.
7 Now, firstly, what is run-of-the-river
8 plant, and then what is modified run-of-the-river
9 plant?
10 MR. CORMIE: The pure run-of-the-river
11 operation is whatever flow is arriving at the
12 generating station is immediately passed through,
13 and the timing of the water is not changed through
14 the operation of the forebay.
15 MR. ABRA: There is no delay?
16 MR. CORMIE: There is no delay.
17 Whatever arrives immediately leaves.
18 MR. ABRA: The water goes in one end,
19 down through the turbines, generates the
20 electricity, and goes out the bottom?
21 MR. CORMIE: Whatever arrives into the
22 reservoir upstream of the dam is immediately
23 released, so that water level doesn't change,
24 because inflow balances outflow each and every
25 moment.
776
1 MR. ABRA: The modified
2 run-of-the-river that you are intending to operate
3 is that you will not be running all of your
4 turbines at the same time. In other words, some
5 of the water will be backed up, and as was
6 described by Mr. Wojczynski yesterday, will be
7 shaped for the purposes of saving it for high peak
8 demand times?
9 MR. CORMIE: That's correct. So when
10 the water supply to the generating station is less
11 than the flow capability of the generating
12 station -- so let's have an example where the
13 outflow capability of the generating station,
14 let's use a number of -- the flow capability of
15 the generating station is 1100 cubic metres per
16 second, that is the discharge. If the water
17 supply coming into the generating station was 1000
18 cubic feet per second, and we could pass 1100 out,
19 we would want to pass 1100 out during the daytime
20 when the price of power was the greatest. That
21 means that at nighttime we would want to cut back
22 the discharge from the generating station so that
23 over the day the average flow was passed, passing
24 less flow at night, and more flow in the daytime
25 to give the average of 1000.
777
1 MR. ABRA: With respect to the
2 operation of the Wuskwatim system itself, or the
3 Wuskwatim Generating Station, it is generally your
4 intention to have the flows fairly regular on a
5 daily basis, is it not?
6 MR. CORMIE: Yes, whatever flows in on
7 a daily basis would flow out. Less would flow out
8 during the nighttime hours and more during the
9 daytime hours. But at the end of the day,
10 whatever arrived would be discharged.
11 MR. ABRA: Now, is that
12 run-of-the-river mode, or the modified
13 run-of-the-river mode that you are intending, is
14 that consistent with Wuskwatim being part of an
15 overall integrated system -- including all of your
16 dams, generation plants?
17 MR. CORMIE: That is the mode that we
18 have designed to operate within.
19 MR. ABRA: What I am asking you though
20 is, can you have the two of them? Can you have an
21 integrated system of all of your hydroelectric
22 station and then also a run-of-the-river --
23 MR. CORMIE: Yes, and there are other
24 stations in the Manitoba Hydro system that have
25 similar types of constraints, where we limit the
778
1 amount of on peak, or the cycling, because of
2 those kind of operating restrictions, licence
3 restrictions, where we choose to operate it as a
4 modified run-of-the-river.
5 MR. ABRA: Now, you of course have a
6 number of large downstream plants along the Nelson
7 River, and those generally are the ones that have
8 driven the operation of the Churchill River
9 Diversion. Is that a fair statement?
10 MR. CORMIE: The large downstream
11 power plants, their need for water in the winter
12 time when the power demand is greatest cannot be
13 satisfied because of the ice restrictions from
14 Lake Winnipeg. So Lake Winnipeg is incapable of
15 meeting their water needs. So we need to augment
16 the flows on the Nelson River in the winter time
17 with Churchill River Diversion.
18 MR. ABRA: That was the whole purpose
19 of CRD --
20 MR. CORMIE: Right.
21 MR. ABRA: -- was for the benefit of
22 the plants?
23 MR. CORMIE: To compliment Lake
24 Winnipeg Regulation, yes.
25 MR. ABRA: Do you foresee any reasons
779
1 that the conditions under which CRD has been
2 operating up until now, in which you -- and upon
3 which you have based your analysis and planning
4 for Wuskwatim could change? For example, would
5 construction of other plants on the Nelson River
6 such as Conawapa or Gull affect that analysis at
7 all? What risks are there to the operation
8 efficiency of Wuskwatim if there are other plants
9 built on the Nelson subsequent to the building of
10 Wuskwatim?
11 MR. CORMIE: More generating stations
12 on the Nelson River reinforce the need to have the
13 high flows in the winter time from the Churchill
14 River Diversion. There is a greater need then for
15 that water in the winter time, so there is more
16 reason to continue to operate the Churchill River
17 Diversion the way we have in the past.
18 MR. ABRA: But you don't see the
19 building of further, more plants on the Nelson in
20 the future affecting the operation of Wuskwatim?
21 MR. CORMIE: Correct.
22 MR. ABRA: That is the conclusion that
23 you have come to?
24 MR. CORMIE: Correct. The driving
25 factor, the major driving factor for Churchill
780
1 River Diversion is the ice effects at the outlet
2 of Lake Winnipeg, and we have no plans to change
3 that. We have no ability to change the icing that
4 occurs in the Lake Winnipeg outlet channels.
5 MR. ABRA: Okay. Now, the evidence
6 was given -- I believe two days ago in the
7 original submission by one of you, I can't
8 remember which one, it may have been you,
9 Mr. Cormie -- that what is intended by the
10 operation of the, or the design and operation of
11 the actual generating station are three turbines
12 that are going to be fixed blade turbines; am I
13 correct?
14 MR. CORMIE: That's correct.
15 MR. ABRA: And each one of them, the
16 turbine flow is approximately 330 cubic metres per
17 second?
18 MR. CORMIE: That sounds correct, yes.
19 MR. ABRA: So 330 for one, 660 for
20 two, and 990 for three?
21 MR. CORMIE: The capacity is 1100, so
22 I would assume 1100 divided by three is a little
23 more than 330. That might be the best gate
24 discharge, that is the most efficient discharge.
25 MR. ABRA: 330 is the most efficient
781
1 discharge, is it not?
2 THE WITNESS: But they are capable of
3 slightly more than that, one-third of 1100.
4 MR. ABRA: But it is your intention to
5 run each of them at 330?
6 THE WITNESS: We would normally
7 operate them at best gate, because that is when we
8 maximize the efficient use of the water.
9 MR. ABRA: It is my understanding
10 there is what is referred to as a variable pitch
11 turbine or a Kaplan turbine. You are familiar
12 with it?
13 MR. CORMIE: Yes.
14 MR. ABRA: And I understand that it is
15 more expensive, but that it can, it can be
16 modified so that it runs less or more with the
17 same degree of efficiency as opposed to being its
18 maximum efficiency, the way the fixed blade
19 turbines have to be. Am I correct in that?
20 THE WITNESS: A Kaplan turbine can
21 operate efficiently over a longer range output
22 than a fixed blade turbine.
23 MR. ABRA: Now, the concern that I am
24 raising or I should -- concern may be too strong a
25 word -- but what I am asking you, it is my
782
1 understanding by using the fixed blade turbines in
2 the manner that you designed, or intend to do,
3 that because the maximum efficiency is 330, so if
4 you have one turbine going it is 330, if you have
5 two it is 660, and if you have three it is 990,
6 that it can have significant environmental impacts
7 downstream. Am I correct?
8 MR. WOJCZYNSKI: The fixed blade
9 turbine in terms of environmental impact is more
10 fish friendly. And we have chosen to go with the
11 fixed blade turbine so it is more, one of the
12 factors being it is more conducive to the
13 successful passage of various species of fish
14 through the turbine assembly.
15 I might add that the Kaplan turbines
16 also have a higher maintenance cost, as well as
17 having a higher capital cost, so there is various
18 trades-offs.
19 MR. ABRA: Do I understand it to be
20 your position that the rationale, in addition to
21 the cost, is that there is, that the fixed blade
22 turbines are more friendly to fish?
23 MR. WOJCZYNSKI: Yes. We had a number
24 of considerations on that, and actually it was
25 documented in the Environmental Impact Statement,
783
1 volume 3, page 39, that the selection process was
2 a balance between generation benefits,
3 reliability, and minimization for environmental
4 effects for the site. And the environmental
5 effects aspect is that the fixed blade design is
6 probably the most, amongst the most fish friendly
7 kind of design that you could have. And so that
8 was a significant factor in the process.
9 MR. ABRA: Okay. But it does result,
10 by having the fixed blade, in a variance, a
11 significant variance in the amount of water being
12 forced out of the generating station after they
13 have gone through the turbines; am I correct? In
14 other words, you have either one, two, or three
15 turbines operating, which leads to a significant
16 variance in the amount of outflow?
17 MR. WOJCZYNSKI: So what you are
18 commenting on here is that if you have the fixed
19 blade, there is a greater amount of water flow
20 change than if you had the Kaplan flexible ones
21 where you can go through the range?
22 MR. ABRA: That's right.
23 MR. WOJCZYNSKI: There is some more
24 lumpiness in the operation, but we have some
25 ability to modify that, because you can go from
784
1 best gate to full gate. There is room in there.
2 Even though when you are at best gate you can, if
3 needed and desirable, you can always go off your
4 best gate for a while and not have your optimal
5 efficiency. You are not forced at the best gate,
6 you have flexibility to operate around that. So
7 it is not just a strictly on and off exercise.
8 MR. ABRA: Thank you. Yesterday, or
9 it may have been earlier today, I can't remember,
10 Mr. Wojczynski, when you gave your definition of
11 shaping, you were talking about part of the reason
12 for doing so was to save the water in order that
13 you could then operate at high peak hours and
14 maximize the amount of electrical power available
15 at high peak hours. Shaping is also required to
16 ensure that, as best as possible, that the
17 turbines are operating at their best efficiency,
18 when you are using the fixed blade turbines, at or
19 near?
20 MR. WOJCZYNSKI: Everything else being
21 equal, you like to operate the turbines at their
22 best gate because then you get the most efficient
23 use of the water, yes. But we will, if we have no
24 other restrictions, we are quite prepared and
25 quite frequently go and operate at higher than
785
1 best gate so we can move water into the on peak
2 and get the additional revenue from the on peak
3 market.
4 MR. CORMIE: Typically, you might lose
5 5 percent from going from best gate operation to
6 full gate operation, so the unit becomes less
7 efficient. But the price differential between the
8 off peak and the on peak might be 100 percent,
9 200 percent. So the cost of running inefficiently
10 during the on peak is more than, and being at best
11 gate during on peak is more than offset -- the
12 efficiency costs are more than offset by the gains
13 in the value of the energy.
14 MR. ABRA: How often do you
15 anticipate, or do you anticipate at all running on
16 one turbine, or just running one turbine? You
17 see, I believe in the design that we have seen
18 there is an indication that approximately
19 7 percent of your operating time you are planning
20 on running at less than 660 cubic --
21 MR. WOJCZYNSKI: We could provide
22 that -- we expect to operate at one unit very
23 infrequently and only under very low flows.
24 MR. ABRA: As I said, I think it is
25 about 7 percent is what you put into your filing
786
1 documents, 7 percent of the time?
2 MR. CORMIE: Subject to check, those
3 sound correct.
4 MR. ABRA: If you are operating, if
5 you operate at less, with just one turbine and
6 then you do go back to your normal two or three,
7 even at 7 percent of the time, will that
8 dramatically increase the amount of water
9 outflowing from the dam at that time?
10 MR. CORMIE: Mr. Abra, because we are
11 going to try and limit the downstream level
12 changes to under 10 centimeters, that restricts
13 the amount of cycling that we can engage in, or
14 the operating to one unit and going to three
15 units, because we are trying to achieve that
16 downstream, minimize those downstream
17 fluctuations. And that will be the governing
18 constraint in turning units on and off under low
19 flow conditions. So we can't be at one unit and
20 then go to, for an extended period of time save up
21 the water and then go to three units for a long
22 period of time, because that will create a large
23 variation in water levels downstream that will
24 violate our objective of not -- of having less
25 than a 10 centimetre water level change at
787
1 Birchtree Lake.
2 MR. ABRA: But the concern that we are
3 expressing, or at least wondering about is -- I
4 gather it is going to happen rarely, but if you
5 are only operating one and then you go to two, you
6 immediately increase by 50 percent the amount of
7 outflow from the dam, or from the generation
8 station?
9 MR. CORMIE: That's correct. And if
10 that would cause a greater than 10 centimetre
11 level change downstream, we would have to operate
12 so that that wouldn't happen -- in the same way,
13 it would be even greater if we were at one unit.
14 MR. ABRA: That wouldn't be, as
15 Mr. Farlinger has said to me, you wouldn't be
16 operating in such a situation, what you referred
17 to as best gate -- which I believe is the most
18 efficient method; is it not?
19 MR. CORMIE: We would have to find
20 what gate operation would be allowed, given that
21 we have an objective downstream of minimizing the
22 level changes.
23 MR. ABRA: My understanding is when
24 you use the term best gate, you are basically
25 talking about the efficiency of the system; am I
788
1 correct?
2 MR. CORMIE: That's correct. We will
3 try to dispatch the generation from the station in
4 the most economic fashion, given that we have got
5 this downstream obligation, and we will find a way
6 of doing that that maximizes the value of the
7 output, given that we have got an operating
8 constraint downstream. And that may not involve
9 operating at best gate. There will be some gate
10 position that we will find that, given the market
11 prices on that particular day, given that we have
12 got these operating constraints and objectives
13 that we have to meet, that we will find a schedule
14 that will do that and live within the constraints.
15 MR. ABRA: That clarifies it for us,
16 because our impression was that you wanted to
17 operate at best gate as often as possible, which
18 presumably you do, but you are saying you are
19 prepared to go away from it if need be?
20 MR. CORMIE: That is correct, given
21 that we have these other overriding constraints.
22 All things equal, we would like to generate as
23 efficiently as we can to maximize the energy
24 production.
25 MR. ABRA: When you were actually
789
1 doing your planning for the design of the
2 generation plant, did you do any kind of a
3 comparison related to the run-of-the-river mode
4 that you are using with respect to the three fixed
5 blade turbines that you are doing, as opposed to
6 the use of the Kaplan turbine?
7 MR. CORMIE: Yes, we did.
8 MR. ABRA: And do you have any
9 documentation in that regard that you can provide
10 to us?
11 MR. WOJCZYNSKI: We will have to
12 undertake to check and see what documentation we
13 have of that. We often have to do extensive work
14 and we can never document it all. Whether we
15 actually have documentation per se is what we are
16 not sure.
17 MR. ABRA: If you have it now is
18 really what we are interested in.
19 MR. WOJCZYNSKI: We don't have it
20 right now.
21 MR. ABRA: I don't mean now, I don't
22 mean this instant, 9:30.
23 MR. CORMIE: Mr. Abra, we went through
24 the analysis of should we have two units or three
25 units or four units, should they be fixed blade,
790
1 what size they should be, and there was an
2 engineering study that was done to support the
3 position.
4 MR. ABRA: If you have something like
5 that that is available, if you could provide it to
6 us --
7 MR. WOJCZYNSKI: What I was saying is
8 whether we actually have documentation of the
9 entire study in a manner that is ready to hand
10 out, or whether we have partial documentation, it
11 is the degree of documentation that we are not
12 clear about at this point. But we have done that
13 work.
14
15 (UNDERTAKING MH-18: Provide documentation
16 of comparison of run-of-the-river mode re three
17 fixed blade turbines as opposed to use of Kaplan
18 turbine)
19
20 MR. WOJCZYNSKI: Just a small
21 clarification. The one unit operation was more
22 like 3 percent rather than 7 percent, if you go
23 to --
24 MR. ABRA: 3 percent?
25 MR. WOJCZYNSKI: -- if you go to page
791
1 428, there is an indication of those
2 probabilities.
3 MR. ABRA: Thank you.
4 MR. CORMIE: Mr. Abra, during the
5 selection of the rated plant discharge, we looked
6 at two types of turbines, vertical shaft propeller
7 and the Kaplan, adjustable Kaplan or fixed blade.
8 We analyzed three different modes, peaking,
9 modified run-of-the-river and run-of-the-river, we
10 looked at whether we should have two units, three
11 units, or four units, and we looked at four
12 different design discharges, 1050 cubic metres per
13 second, 1100, 1200, and 1400. That is the
14 analysis that I was mentioning out of which we
15 ended up with our design.
16 MR. ABRA: Your draw downs of
17 Wuskwatim Lake, what does the term "draw down"
18 mean?
19 MR. CORMIE: Whenever there is more
20 water leaving the generating station than is
21 arriving, the water level will slowly decline.
22 And then during the nighttime when we have shut
23 one of the generating units down, and now there is
24 less water leaving than is arriving, the reservoir
25 will refill again. So draw down is usually
792
1 referred to as the difference between the highest
2 level the reservoir is at during the daytime and
3 the lowest level.
4 MR. ABRA: And as your demand for
5 electricity increases at any given time, then you
6 have to do more draw downs in order to meet that
7 demand; am I correct?
8 MR. CORMIE: The amount of draw down
9 is a function of the difference between the inflow
10 and the outflow of the reservoir.
11 MR. ABRA: Right. So if you have an
12 increased demand, then you are going to have more
13 draw down, are you?
14 MR. CORMIE: With the proviso that we
15 have to refill the reservoir by the time we get
16 back to the start of the next day. So if the
17 inflow and the outflow capability at the
18 generating station are very close -- let's say the
19 inflow to the dam is at at 1100, and we can only
20 pass 1100 from the generating station without
21 spilling, there will be no draw down on that date,
22 because whatever is arriving will be leaving. If
23 the inflow is much less than the outflow
24 capability, then there will be draw down.
25 MR. ABRA: At the present time, do you
793
1 have any limit on the number of draw downs that
2 you can do on any of your existing plants to meet
3 abnormal demand conditions?
4 MR. CORMIE: We have limits on, only
5 on the Lower Nelson reservoirs, and those are
6 limits established by our geotechnical engineers
7 for draw down, in order to ensure the integrity of
8 the dams from rapid draw down. For example --
9 MR. ABRA: Do you put those limits on
10 or are they put on by the licence or what?
11 MR. CORMIE: Those are engineering
12 limits that are established at the time of design
13 and during operations, we respect those so not to
14 subject the dams to rapid draw down conditions
15 that would put the structures at risk.
16 MR. ABRA: But they aren't conditions
17 on your licence?
18 MR. CORMIE: They are not conditions,
19 they are self-imposed.
20 MR. ABRA: I would like to go to the
21 transmission project briefly. We heard evidence
22 yesterday about Bipole III, there was a reference,
23 a description about it and so on. And according
24 to your NFAAT volume I, you describe the new high
25 voltage direct current transmission line, which is
794
1 of course Bipole III, and you indicate in the
2 document that at peak the line will reduce
3 transmission losses by 86 megawatts.
4 Is that figure correct, because
5 Mr. Farlinger and Mr. Scriven have worked away at
6 it, and the best they have gotten is 77 to
7 78 megawatts?
8 MR. WOJCZYNSKI: Subject to check,
9 that number is reference to northern generation.
10 As we've indicated in interrogatory, we typically
11 reference a lot of things back to northern
12 generation.
13 MR. ABRA: What do you mean by
14 northern generation?
15 MR. WOJCZYNSKI: Most of our
16 generation is in the north and Northern Manitoba.
17 From the north to the south there is in the order
18 of 10 percent losses, nominally we say 10 percent
19 losses. So we always have this challenge when
20 talking about generator ratings, is it the rating
21 at the generator in the north or is it down south,
22 once you have got through the transmission system
23 and have 10 percent losses, and you are now at the
24 U.S./Canadian border ready to export? So a lot of
25 our work is referenced to a common point in the
795
1 north effectively. So that is often the cause for
2 confusion, is it reference to the north or the
3 south?
4 MR. MAYER: Excuse me, that doesn't
5 make a lot of sense to me. As I understand your
6 saving on -- in fact, your business case for
7 Bipole III is that in the transportation from the
8 north to the south, you reduce your loss by that
9 amount of energy that is equivalent to, I think
10 you said 86 or 82 megawatts. So, quite frankly, I
11 don't understand how there would be any confusion.
12 It starts in the north, it ends in the south, the
13 loss occurs in between, the saving has to be
14 determined between those two points.
15 MR. WOJCZYNSKI: Let me start with
16 another example that might make it clearer. Let's
17 say we are talking about the addition of
18 Wuskwatim. It is a 200-megawatt station. If you
19 go to the generating station and you are to
20 measure the output of the station at peak, it
21 would be let's say 200 megawatts at the generating
22 station. But once it gets through the
23 transmission system and you are at the border and
24 you are looking to export it, you have had
25 10 percent losses roughly between Northern
796
1 Manitoba and Southern Manitoba. So now you have
2 got 180 megawatts output out of Wuskwatim. And
3 then you would essentially sell on the export
4 market 180 megawatts. So that is where we
5 commonly reference to the north or the south.
6 So now let's talk about the Bipole III
7 line. If we have got, we are trying to put over
8 the Bipole III -- pardon me, existing Bipoles I
9 and II -- say 3500 megawatts of generation that we
10 are trying to get from Northern Manitoba to
11 Southern Manitoba over the DC. And then we have
12 losses from the north to the south, and the losses
13 mean that what you see at the southern end is less
14 than what is at the northern end. It ends up
15 being around 3300 megawatts. So you have a few
16 hundred megawatts of loss between the north and
17 the south. So when we add the new line, those
18 losses will be reduced at the peak time, the very
19 peak, by around -- if you are at the receiving end
20 down south it would be, I think the number was
21 78 megawatts, something like that. But what is
22 that equivalent to if you had been sending that
23 same amount of generation from the north? It
24 would be 10 percent more, which will be something
25 like 86 megawatts.
797
1 So if you are thinking if there was an
2 equivalent generator to that loss reduction and it
3 was setting up north it would be equal to
4 86 megawatts, and that is what we put in our
5 capacity energy tables, because you have to have a
6 common reference point in the capacity energy
7 tables.
8 MR. MAYER: I understand what you are
9 saying. I didn't understand how you would ever
10 start this computation at the south end of a line,
11 since all of your saving is -- the saving is in
12 the loss from the transportation from the north to
13 the south. And you say that saving, by building
14 an extra line, your saving in your losses is
15 86 megawatts. And I heard Mr. Abra say that our
16 engineer says that is high.
17 MR. WOJCZYNSKI: Let me explain it.
18 If you go to the capacity energy tables at the
19 back of the book, at the back of the filing, and
20 if you want we can go there -- maybe I should just
21 say that we have them. Those capacity energy
22 tables are all reference to the north, and even
23 our load is referenced back to the north. So it
24 is, in effect, how much power do you have to
25 supply to meet the Manitoba load, including the
798
1 losses to get that power down south? So we have a
2 table that has everything referenced to the north.
3 In the case of the Bipole III line
4 loss reduction, if we show it as a line item in
5 that table, it now, to be consistent with
6 everything else that we have shown, has to also be
7 like you are pretending it is a generator in the
8 north, and it would have to have that 10 percent
9 loss added back in.
10 Another analogy that might be more
11 intuitively easy to understand, the losses in
12 Bipole III line would be equivalent to, if
13 Limestone was 86 megawatts bigger, and then we
14 could add that into Limestone magically, then with
15 the current system down south we would have 77
16 more megawatts to sell south of the Border, and
17 that is the equivalent of the Bipole III line loss
18 reduction.
19 MR. ABRA: Yes. You are saying that
20 your 86 is at Limestone. By the time it gets to
21 southern Manitoba, it is at 77?
22 MR. WOJCZYNSKI: Yes.
23 MR. ABRA: Okay.
24 MR. MAYER: Everybody on the same wave
25 length?
799
1 MR. ABRA: We are now. All they had
2 to decide was whether they were in the north or
3 the south.
4 MR. MAYER: I always knew where I was.
5 MR. ABRA: All of the power from the
6 reduced losses, are they going to be translated
7 over the HVD system, or will some of the power be
8 transferred over the Northern AC system?
9 MR. WOJCZYNSKI: Could you repeat the
10 question?
11 MR. ABRA: All of the power from the
12 reduced losses, will that be transmitted over the
13 HVD system, or will some of the power be
14 transmitted through the Northern AC system?
15 MR. WOJCZYNSKI: What would happen is
16 at the northern end up you would have the same
17 amount of power to start with. So before you
18 build the Bipole III, you start with say
19 3600 megawatts. Then when you get down to
20 Southern Manitoba, you have got say 3300 megawatts
21 due to losses.
22 Now when you add the Bipole III line
23 you would still start with 3600 megawatts up
24 north, because you have the same amount of
25 generation, but once you got down south to the
800
1 border, you would now, instead of having
2 3300 megawatts, you would have 3377 megawatts
3 available to export. And that was all on the DC.
4 MR. ABRA: If all of the power from
5 the reduced losses then is transmitted to Bipole
6 III, can it all be converted at the Dorsey station
7 all days of the year?
8 MR. WOJCZYNSKI: No, that was at the
9 peak, so the megawatt amount we gave is at the
10 peak and it would tend -- there would be a
11 relationship between that and the amount of power
12 flowing down. So if we had less load, let's say
13 at night, for example, the loss reduction would be
14 smaller as well because it follows a squared
15 relationship, an I squared R relationship. So it
16 wouldn't always be the same, it would depend on
17 how much power was going to be flowing down the
18 lines down south. And the more power that you are
19 trying to put down over those lines, the bigger
20 the losses would normally be, and the bigger the
21 loss saving would be if you added the third line.
22 MR. MAYER: Isn't the issue then --
23 and I thought I heard you mention earlier that at
24 some point in time you need to build another
25 inverter station to compliment Dorsey?
801
1 MR. WOJCZYNSKI: That is a separate
2 kind of issue. But perhaps what the question was
3 getting at, and I didn't quite follow it properly,
4 was if we put the additional line in, where are
5 those, where is that additional power going to be
6 showing up? And I think I see a bit of a nodding
7 of a head there.
8 So, what we would be doing is the
9 Bipole III line would be hooking back into the
10 Dorsey Station, in effect and there would, the
11 additional 77 megawatts would be showing up at
12 Dorsey, from the invertors at Dorsey. And the
13 equipment would be able to take care of that.
14 Let the record show that Mr. Mazur
15 nodded.
16 THE CHAIRMAN: And I saw some nods
17 here too.
18 MR. ABRA: Let the record show that
19 all of the engineers nodded and the rest of us
20 don't understand it.
21 With respect to the pylons, it is my
22 information that over the last number of years
23 when you have been building the transmission
24 lines, you have used what is referred to as a
25 guyed, G-U-Y-E-D, tubular steel for the various
802
1 project, and in this particular project you plan
2 on using guyed lattice steel?
3 They are all looking at you, Mr.
4 Mazur?
5 MR. MAZUR: I think what you said is
6 correct, but as far as the rationale for it, I
7 think I have to refer back to the transmission
8 designers. So we can take that back with us.
9 MR. ABRA: You will get that
10 information for us? We are wondering the reason
11 for the change?
12 MR. MAZUR: I will have to take that
13 as an undertaking -- or we will address it at the
14 EIS.
15 MR. ABRA: We are wondering whether or
16 not it is a difference in cost, or are there other
17 reasons for the change? You will find that out
18 for us?
19 MR. MAZUR: Yes.
20
21 (UNDERTAKING MH-19: Advise reason for change from
22 guyed tubular steel to guyed lattice steel)
23
24 MR. ABRA: Now, there has also been
25 discussion, I know that you had two separation
803
1 options with respect to the route for the
2 transmission line from Wuskwatim to Birchtree
3 Station, which is the first stage, there was two
4 separate options. One of them was approximately
5 42 kilometres in length, which is about 26 miles,
6 and the other one, the one that you have indicated
7 as the preferable one is 46 kilometres or
8 approximately 28 and a half miles. And the
9 difference in estimated cost I believe is
10 approximately $8,415.
11 Why is the option that is the longer
12 route the preferable one?
13 MR. MAZUR: You will probably get a
14 complete answer with the other panel, but
15 essentially the process for selecting a route is
16 to -- first, you know you want to go from A to B
17 and you look at the alternate routes, and then go
18 through a process of consultation, of selecting
19 the most preferred route from the environmental
20 factors. Of course, you try and minimize costs,
21 but as was said in some of these presentations,
22 you also try and avoid sensitive areas like
23 cultural areas. So the final selection really
24 will take all of those routing factors into
25 consideration, and I think we will get a better
804
1 answer once we get --
2 MR. ABRA: Is that a question better
3 left to the EIS panel?
4 MR. MAZUR: Yes, it is.
5 MR. ABRA: Okay. You have also
6 indicated in your transmission -- this is in the
7 EIS filing, so again you may not know the answer.
8 But you have indicated where possible
9 structures -- which means the pylons for the
10 transmission line -- will not be located on sites
11 underlain by permafrost.
12 What precautions are you taking in
13 your construction in order to overcome any
14 difficulties that may arise as a result of
15 permafrost if indeed you do have to put some of
16 the structures on the areas where there is
17 permafrost?
18 MR. MAZUR: I think we will defer that
19 one as well. Those tend to be civil engineers --
20 I try to stay away from that.
21 MR. ABRA: Are any of you civil
22 engineers? If you want to undertake to get the
23 answer, but it strikes us as being a structural
24 issue, not an environmental issue.
25 MR. MAZUR: We will get the answer and
805
1 provide it.
2 MR. ABRA: That is fine, thank you.
3
4 (UNDERTAKING MH-20: Advise re precautions taken
5 in construction in order to overcome difficulties
6 arising as result of permafrost)
7
8 MR. ABRA: And you've also indicated
9 in the transmission EIS, the need for what is
10 referred to as a static VAR compensator, which is
11 commonly referred to as an SVC at the Birchtree
12 Station. Is it required; irrespective of whether
13 the project proceeds or not?
14 MR. MAZUR: No.
15 MR. ABRA: It is not?
16 MR. MAZUR: No.
17 MR. ABRA: Okay.
18 MR. MAZUR: It is required if the
19 project proceeds, just to make that clear.
20 MR. ABRA: The last area that I want
21 to go to very quickly, I promise -- I keep saying
22 that, I know, but most of them require a one word
23 answer.
24 Page 13 to 16 of your NFAAT filing,
25 your review of the risks that are inherent -- page
806
1 13 to 16 of the overview.
2 MR. WOJCZYNSKI: Which page would you
3 like us to be at?
4 MR. ABRA: The top of page 14,
5 Mr. Wojcznski, and then through page 15, you will
6 see a series of risks that have been identified.
7 With respect to each of those risks, and I will go
8 through them, can you characterize for us whether
9 it is low, medium, or high.
10 Now, the first one is the fact that,
11 as we are well aware and we heard much about
12 yesterday, that the Manitoba Hydro partnership
13 negotiation with NCN is still not complete, and
14 whether NCN will ultimately be a partner as
15 anticipated at the present time. That is a risk
16 that has been identified. Is that low, medium, or
17 high?
18 MR. WOJCZYNSKI: Low.
19 MR. ABRA: You have also indicated
20 that in addition to NCN, there are other First
21 Nations and Aboriginal consultations that must
22 take place. How is that risk?
23 MR. WOJCZYNSKI: It is a low risk in
24 the sense that we have to go through a proper
25 process, we are still engaged in it, and it is not
807
1 entirely complete, and that the project wouldn't
2 proceed until sufficient amount of the
3 consultations have happened. And so we still are,
4 in certain instances still engaged in
5 consultation, but we are -- we would view that as
6 a low risk.
7 MR. ABRA: Legal challenges?
8 MR. WOJCZYNSKI: I don't think that we
9 can put a probability to that.
10 MR. ABRA: I guess that is true. You
11 are not prepared to indicate that? You haven't
12 received any indication one way or the other in
13 that regard obviously?
14 MR. WOJCZYNSKI: There is always the
15 possibility --
16 MR. ABRA: You would like to think it
17 is low?
18 MR. WOJCZYNSKI: -- there is always
19 the possibility of such a thing happening. We
20 think the ultimate consequences for the project,
21 the likelihood of a significant consequence are
22 low.
23 MR. ABRA: A drought?
24 MR. WOJCZYNSKI: It is a low risk.
25 MR. ABRA: Low export prices?
808
1 MR. WOJCZYNSKI: Low risk.
2 MR. ABRA: Environmental premiums?
3 MR. WOJCZYNSKI: Well, okay, the
4 environmental premium we would consider to be a
5 plus for the project, so I have trouble to think
6 of it as a risk. So I would lump it in together
7 with the export price.
8 MR. ABRA: As being low?
9 MR. WOJCZYNSKI: Low risk that the
10 combined export price with its environmental
11 premium would be low, so there is a low risk of
12 that.
13 MR. ABRA: Capital cost?
14 MR. WOJCZYNSKI: There is a low risk
15 that we will be outside of the bounds of our range
16 that we looked at.
17 MR. ABRA: Of your projections, of
18 your estimates?
19 MR. WOJCZYNSKI: Yes.
20 MR. ABRA: Interconnection
21 availability?
22 MR. WOJCZYNSKI: Low risk of having a
23 problem there.
24 MR. ABRA: Higher domestic load
25 growth?
809
1 MR. WOJCZYNSKI: There is a medium
2 possibility of it happening, but I wouldn't
3 characterize it as a risk. If that happened, then
4 we would be even better off with Wuskwatim having
5 been advanced, and Manitoba customers would be
6 better off in that case.
7 MR. ABRA: Schedule development?
8 MR. WOJCZYNSKI: You mean the schedule
9 of Wuskwatim --
10 MR. ABRA: Schedule delays really is
11 what it means?
12 MR. WOJCZYNSKI: Once we get through
13 the regulatory process and we have a licence,
14 after that the risk of a schedule delay are low.
15 MR. MAYER: It is all our fault.
16 MR. ABRA: Good answer.
17 MR. WOJCZYNSKI: We aren't giving
18 fault to anybody, we are merely describing an
19 attribute.
20 MR. ABRA: Long term reduction in
21 stream flows?
22 MR. WOJCZYNSKI: Low -- recognizing
23 that when we talk about long term, there is also a
24 similar kind of probability of something higher
25 happening or better happening too.
810
1 MR. ABRA: You have also identified
2 what would be characterized as benefits, that are
3 really on pages 15 and over to page 16. First is
4 economic. Again, can you characterize the
5 benefits as low, medium, or high?
6 MR. WOJCZYNSKI: High probability of
7 the project being economic.
8 MR. ABRA: Long term rate benefits?
9 MR. WOJCZYNSKI: High probability.
10 MR. ABRA: Maintains corporate
11 financial stability for Manitoba Hydro?
12 MR. WOJCZYNSKI: High probability.
13 MR. ABRA: Risks are manageable?
14 MR. WOJCZYNSKI: High.
15 MR. ABRA: Clean renewable power?
16 MR. WOJCZYNSKI: High -- sorry, in our
17 view it is not a high probably, it is a certainty.
18 MR. ABRA: Socially acceptable?
19 MR. WOJCZYNSKI: High.
20 MR. ABRA: Enhanced reliability?
21 MR. WOJCZYNSKI: High.
22 MR. ABRA: Supply for higher than
23 forecast load growth?
24 THE WITNESS: If it occurs, high.
25 MR. ABRA: Economic development,
811
1 including training, jobs, business opportunities
2 and so on?
3 MR. WOJCZYNSKI: High.
4 MR. ABRA: And retaining of core
5 capabilities for consulting, construction and
6 manufacturing industries?
7 MR. WOJCZYNSKI: High.
8 MR. ABRA: Thank you very much. Those
9 are all of the questions that I have for you. It
10 has been a long three days for all of you, I know.
11 Thank you very much for your assistance. Some of
12 the panel members may still have questions, but I
13 thank you personally on behalf of all of the
14 consultants.
15 MS. WRAY: Mr. Abra, I had undertaken
16 just a little bit earlier to find some
17 interrogatory responses which may or may not -- I
18 hope may -- assist in the questioning with respect
19 to how the partnership results are reflected in
20 the consolidation.
21 One reference would be the
22 supplemental filing of August 8, the reference
23 would be CAC, or CCC NFAAT S8, and another couple
24 of references that might be helpful in terms of
25 the line by line explanatory notes of each of the
812
1 lines in the financial statements and what it
2 includes would be CAC/MSOS/MH/NCN round I NFAAT
3 97a and 106a.
4 THE CHAIRMAN: Thank you. I gather
5 that is all of the questions from the panel
6 members as well. I thank you as well, Mr. Abra,
7 because it has been long for you as well.
8 Mr. Thomas?
9 MR. THOMAS: I just wanted to remind
10 the Chair and the Commissioners that, in general
11 that when we start a session we do so with an
12 opening prayer with one of our elders, and it
13 would be respectful if we close it off with a
14 closing prayer by our elder.
15 THE CHAIRMAN: We intend to do that as
16 soon as we get to that point. I thank you for
17 reminding me.
18 I refer to Mr. Grewar, the Commission
19 Secretary, for I think filing of exhibits for one
20 thing.
21 MR. GREWAR: Yes, Mr. Chairman, just
22 two items that were filed by Manitoba Hydro and
23 NCN today; one is correspondence containing
24 witness CV's for Alex Flemming and also for Marvin
25 Schaffer. It would be exhibit MH/NCN 1002. And
813
1 previous to that, this was actually filed
2 yesterday, which is the TREE rebuttal from
3 Manitoba Hydro/NCN, and it would be MH/NCN 1001,
4 so slightly out of order, but those are both
5 entered.
6
7 (EXHIBIT MH/NCN 1001: TREE rebuttal)
8
9 (EXHIBIT MH/NCN 1002: CV's for Alex
10 Flemming and Marvin Schaffer)
11
12 THE CHAIRMAN: Thank you. That having
13 been said, and in view of the time, even though we
14 had indicated earlier that there would be a
15 possibility for members and the participants to
16 get involved in the process of questioning this
17 evening, as you look at your watch, you will see
18 that we are now very, very close to 10:00 o'clock,
19 and it has been a long day. So I think this means
20 that we will be adjourning for this evening and
21 for this week. But we will be reconvening on
22 Monday morning, 9:00 o'clock, and the process of
23 questioning the panel members -- the proponents on
24 the needs, NFAAT, will then pass on to the
25 registered participants and other members of the
814
1 public that will be in attendance.
2 Are there other points, Mr. Grewar, to
3 raise at this time?
4 MR. GREWAR: No, Mr. Chairman.
5 THE CHAIRMAN: In that case, I do
6 invite our elder to come back for the adjourning
7 prayer.
8 ELDER DYSART: Thank you. First of
9 all, I would like to express myself as an elder
10 from NCN. What I have heard in the past three
11 days was very, very -- I was very happy. I took
12 it in my heart in what I heard. There are things
13 that we talk about in our livelihood, like the
14 fishing industry, the trapping industry. The
15 trapping industry goes up and down from $10 to
16 $1,000 on fur. The fishing industry is not that
17 bad. So I cannot tell my future generations to go
18 trapping or fishing. I would like to point out to
19 them that you either go to school and get an
20 education or learn something about the project.
21 I have been standing here for the last
22 30 years talking about both projects, and I have
23 looked forward to this. This is the first
24 opportunity we had to own part of it.
25 So, I'm thankful for what I heard.
815
1 The questions you ask the people, the panel, I
2 would never have thought about these questions.
3 But the livelihood we had in our community was not
4 difficult, we lost some but we gained some.
5 I'm happy that we can go forward and
6 give our children better jobs and better
7 educations. I'm very, very glad that ATEC
8 building will be coming up. And the amount of
9 money, I will never earn that in my lifetime, that
10 is coming up there. It is something good for our
11 community. It is something that we can rely on,
12 there are jobs. Not only that, there are other
13 communities that can benefit out of that. They
14 can send their children up there from the closer
15 areas instead of sending them back here. We have
16 problems with that, most of our kids don't serve
17 the full education that they are supposed to get,
18 and they come home, they either say, we have got
19 no one -- they will live in the cities.
20 Thank you. Let us pray in our own
21 language for God understands our own language.
22 (PRAYER)
23 (HEARING ADJOURNED AT 10:00 P.M.)
24
25